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Why do Biased Heuristics Approximate Bayes Rule in Double Auctions?

Author

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  • Shyam Sunder
  • Karim Jamal

Abstract

Jamal 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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Suggested Citation

  • Shyam Sunder & Karim Jamal, "undated". "Why do Biased Heuristics Approximate Bayes Rule in Double Auctions?," GSIA Working Papers 1999-23, Carnegie Mellon University, Tepper School of Business.
  • Handle: RePEc:cmu:gsiawp:308
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    1. 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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    Cited by:

    1. Shyam Sunder & MODELS A, 2002. "Markets as Artifacts: Aggregate Efficiency from Zero-Intelligence Traders," Yale School of Management Working Papers ysm284, Yale School of Management, revised 01 Sep 2004.

    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - 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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