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k-ZI: A GENERAL ZERO-INTELLIGENCE MODEL IN CONTINUOUS DOUBLE AUCTION

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  • WENJIE ZHAN

    (School of Management, Huazhong University of Science and Technology, Wuhan 430074, China)

  • JINLONG ZHANG

    (School of Management, Huazhong University of Science and Technology, Wuhan 430074, China)

  • JIE YANG

    (School of Management, Huazhong University of Science and Technology, Wuhan 430074, China)

  • SHOUYANG WANG

    (Institute of Systems Science, Academy of Mathematics and Systems Sciences, Chinese Academy of Sciences, Beijing 100080, China)

  • K. K. LAI

    (Department of Management Sciences, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong, China)

Abstract

Replacing human traders by "zero-intelligence" (ZI) programs that submit random bids and offers in their experiments, Gode and Sunder11conclude that the primary cause of high allocation efficiency and the convergence to theoretical equilibrium price in a continuous double auction market are the market discipline rather than the intelligence of traders. In this paper, we study the influence of ZI traders' expected profit margin on the continuous double auction markets. For this purpose, we develop a general zero-intelligence model that is called "k-ZI" wherek ∈ [0, 1]. Whenk = 0, ak-ZI trader becomes a ZI with constraint (ZI-C) trader; whenk = 1, ak-ZI trader becomes a truth-telling trader. The parameter "k" determines the expected profit margin ofk-ZI traders. By the experiments conducted, we investigate its influence on the continuous double auction market, such as on the allocation efficiency, the trade ratio and the average trade price. The interesting finding is that parameter "k" affects the allocation efficiency and the trader ratio in continuous double auction markets. In order to interpret experimental results economically, the anti-Marshallian paths of double auction markets are provided.

Suggested Citation

  • Wenjie Zhan & Jinlong Zhang & Jie Yang & Shouyang Wang & K. K. Lai, 2002. "k-ZI: A GENERAL ZERO-INTELLIGENCE MODEL IN CONTINUOUS DOUBLE AUCTION," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 1(04), pages 673-691.
    • Handle: RePEc:wsi:ijitdm:v:01:y:2002:i:04:n:s0219622002000385
    DOI: 10.1142/S0219622002000385
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    Cited by:

    1. Plott, Charles & Roy, Nilanjan & Tong, Baojia, 2013. "Marshall and Walras, disequilibrium trades and the dynamics of equilibration in the continuous double auction market," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 190-205.

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