Why do Biased Heuristics Approximate Bayes Rule in Double Auctions?
AbstractJamal and Sunder (1996) showed that the median prices in double auctions populated by zero-intelligence (ZI) traders whose trading limits are set by two biased heuristics tend to converge to the same equilibrium as if their trading limits were set by applying Bayes' Rule. This note provides an analytical explanation of why the repeated use of biased heuristics approximates Bayes rule.
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Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm197.
Date of creation: 07 Jun 2001
Date of revision:
Aggregate Market Rationality; Bayesian Equilibrium; Double Auction; Biased Heuristics;
Other versions of this item:
- Jamal, Karim & Sunder, Shyam, 2001. "Why do biased heuristics approximate Bayes rule in double auctions?," Journal of Economic Behavior & Organization, Elsevier, vol. 46(4), pages 431-435, December.
- Shyam Sunder & Karim Jamal, . "Why do Biased Heuristics Approximate Bayes Rule in Double Auctions?," GSIA Working Papers 1999-23, Carnegie Mellon University, Tepper School of Business.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
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- Jamal, Karim & Sunder, Shyam, 1996. "Bayesian equilibrium in double auctions populated by biased heuristic traders," Journal of Economic Behavior & Organization, Elsevier, vol. 31(2), pages 273-291, November.
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