Strategy-proofness and Markets
If a market is considered to be a social choice function, then the domain of admissible preferences is restricted and standard social choice theorems do not apply. A substantial body of analysis, however, strongly supports the notion that attractive strategy-proof social choice functions do not exist in market settings. Yetprice theory, which implicityly assumes the strategy-proofness of markets, performs quie well in describing many real markets. This paper resolves this paradox in two steps. First, given that a market is not strategy-proof, it should be modeled as a Bayesian game of incomplete information. Second, a double auction market, which is perhaps the simplest operationalization of supply and demand as a Bayesian game, is approximately strategy-proof even when the number of traders on each side of the market is quite moderate.
|Date of creation:||Mar 1999|
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- Barbera, Salvador & Sonnenschein, Hugo & Zhou, Lin, 1991.
"Voting by Committees,"
Econometric Society, vol. 59(3), pages 595-609, May.
- Salvador Barbera & Hugo Sonnenschein & Lin Zhou, 1990. "Voting by Committees," Cowles Foundation Discussion Papers 941, Cowles Foundation for Research in Economics, Yale University.
- Barbera, S. & Sonnenschein, H., 1988. "Voting By Quota And Committee," UFAE and IAE Working Papers 95-88, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Gibbard, Allan, 1978. "Straightforwardness of Game Forms with Lotteries as Outcomes," Econometrica, Econometric Society, vol. 46(3), pages 595-614, May.
- Gibbard, Allan, 1973. "Manipulation of Voting Schemes: A General Result," Econometrica, Econometric Society, vol. 41(4), pages 587-601, July.
- Salvador Barbera & Matthew O. Jackson, 1993.
1021, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Gul, Faruk & Postlewaite, Andrew, 1992. "Asymptotic Efficiency in Large Exchange Economies with Asymmetric Information," Econometrica, Econometric Society, vol. 60(6), pages 1273-92, November.
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