Money Pumps in the Market
Agents who employ non-rational choice procedures are often vulnerable to exploitation, in the sense that a profit-seeking trader can offer them a harmful transaction which they will nevertheless accept. We examine the vulnerability of a procedure for deciding whether to buy a lottery: observe another agent who already bought it and buy the lottery if that agent's experience was positive. We show that the exploitation of such agents can be embedded in an inter-temporal market mechanism, in the form of speculative trade in an asset of no intrinsic value. (JEL: D84) (c) 2008 by the European Economic Association.
Volume (Year): 6 (2008)
Issue (Month): 1 (03)
|Contact details of provider:|| Web page: http://www.mitpressjournals.org/jeea|
|Order Information:||Web: http://www.mitpressjournals.org/jeea|
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.:
- Spiegler, Ran, 2006.
"Competition over agents with boundedly rational expectations,"
Econometric Society, vol. 1(2), pages 207-231, June.
- Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
- David Laibson & Leeat Yariv, 2007.
"Safety in Markets: An Impossibility Theorem for Dutch Books,"
122247000000001746, UCLA Department of Economics.
- Leeat Yariv & David Laibson, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," 2004 Meeting Papers 867, Society for Economic Dynamics.
- Rani Spiegler, 2005.
"The Market for Quacks,"
784828000000000634, UCLA Department of Economics.
- Martin Osborne & Ariel Rubinstein, 2002.
"Sampling Equilibrium with an Application to Strategic Voting,"
Levine's Working Paper Archive
506439000000000037, David K. Levine.
- Osborne, Martin J. & Rubinstein, Ariel, 2003. "Sampling equilibrium, with an application to strategic voting," Games and Economic Behavior, Elsevier, vol. 45(2), pages 434-441, November.
- Osborne, Martin J & Rubinstein, Ariel, 1998.
"Games with Procedurally Rational Players,"
American Economic Review,
American Economic Association, vol. 88(4), pages 834-47, September.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
When requesting a correction, please mention this item's handle: RePEc:tpr:jeurec:v:6:y:2008:i:1:p:237-253. 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: (Kristin Waites)
If references are entirely missing, you can add them using this form.