Is individual rationality essential to market price formation? The contribution of zero-intelligence agent trading models
The paper investigates the minimum level of individual rationality that is needed for market prices to converge toward their equilibrium level. It does so by examining the theoretical and methodological foundations of the 'zero-intelligence' (ZI) agent trading approach, with which Gode and Sunder (1993a) claimed that weak individual rationality requirements suffice to obtain equilibrium prices. The paper shows that ZI agents are endowed with a higher degree of rationality than previously believed. Though not maximizing utility, they exhibit utility-improving behavior, and their decision-making rules fulfill important predictions of the theory of choice based on maximization, namely downward-sloping individual demand and upward-sloping individual supply. Additional cognitive skills would be required, were some simplifying assumptions of the basic model removed. Gode and Sunder's analysis supports a non-neoclassical rational choice theory, in which optimization can be replaced by a variety of behavioral rules, while still preserving important results on the functioning of markets.
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.
Volume (Year): 16 (2009)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RJEC20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RJEC20|
When requesting a correction, please mention this item's handle: RePEc:taf:jecmet:v:16:y:2009:i:1:p:1-19. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.