Price Formation in Double Auctions
We develop a model of information processing and strategy choice for participants in a double auction. Sellers in this model form beliefs that an offer will be accepted by some buyer. Similarly, buyers form beliefs that a bid will be accepted. These beliefs are formed on the basis of observed market data, including frequencies of asks, bids, accepted asks, and accepted bids. Then traders choose an action that maximizes their own expected surplus. The trading activity resulting from these beliefs and strategies is sufficient to achieve transaction prices at competitive equilibrium and complete market efficiency after several periods of trading.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Plott, Charles R., .
"Industrial Organization Theory and Experimental Economics,"
405, California Institute of Technology, Division of the Humanities and Social Sciences.
- Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
- Vernon L. Smith, 1962.
"An Experimental Study of Competitive Market Behavior,"
Journal of Political Economy,
University of Chicago Press, vol. 70, pages 322.
- Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 111.
- Hurwicz, Leonid & Radner, Roy & Reiter, Stanley, 1975.
"A Stochastic Decentralized Resource Allocation Process: Part I,"
Econometric Society, vol. 43(2), pages 187-221, March.
- Hurwicz, Leonid & Radner, Roy & Reiter, Stanley, 1975. "A Stochastic Decentralized Resource Allocation Process: Part II," Econometrica, Econometric Society, vol. 43(3), pages 363-93, May.
- Cason, Timothy N. & Friedman, Daniel, 1996.
"Price formation in double auction markets,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 20(8), pages 1307-1337, August.
- Gjerstad, S. & Dickhaut, J., 1995.
"Price Formation in Double Auctions,"
284, Minnesota - Center for Economic Research.
- Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
- Easley, David & Ledyard, John., . "Theories of Price Formation and Exchange in Double Oral Auctions," Working Papers 611, California Institute of Technology, Division of the Humanities and Social Sciences.
- Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
- Jon Ketcham & Vernon L. Smith & Arlington W. Williams, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," Review of Economic Studies, Oxford University Press, vol. 51(4), pages 595-614.
When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:22:y:1998:i:1:p:1-29. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.