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How Optimism Leads to Price Discovery and Efficiency in a Dynamic Matching Market

  • Majumdar, Dipjyoti
  • Shneyerov, Art
  • Xie, Huan

Abstract We study a market search equilibrium with aggregate uncertainty, private information and heterogeneus beiefs. Traders initially start out optimistic and then update their beliefs based on their matching experience in the market, using the Bayes rule. It is shown that all separating equilibria converge to perfect competition in the limit as the time between matches tends to 0. We also establish existence of a separating equilibrium.

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File URL: http://microeconomics.ca/artyom_shneyerov/Opt_MSX.pdf
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Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number artyom_shneyerov-2010-32.

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Length: 41 pages
Date of creation: 23 Oct 2010
Date of revision: 26 Oct 2010
Handle: RePEc:ubc:pmicro:artyom_shneyerov-2010-32
Contact details of provider: Web page: http://www.economics.ubc.ca/

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  1. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "The rate of convergence to perfect competition of matching and bargaining mechanisms," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1164-1187, May.
  2. Alp Atakan, 2007. "Competitive Equilibria in Decentralized Matching with Incomplete Information," 2007 Meeting Papers 213, Society for Economic Dynamics.
  3. Pietro Ortoleva, 2012. "Modeling the Change of Paradigm: Non-Bayesian Reactions to Unexpected News," American Economic Review, American Economic Association, vol. 102(6), pages 2410-36, October.
  4. Nir Dagan & Roberto Serrano & Oscar Volij, 1998. "Comment on McLennan and Sonnenschein 'Sequential Bargaining as a Noncooperative Foundation for Walrasian Equilibrium'," Econometrica, Econometric Society, vol. 66(5), pages 1231-1233, September.
  5. Piero Gottardi & Roberto Serrano, 2005. "Market Power And Information Revelation In Dynamic Trading," Journal of the European Economic Association, MIT Press, vol. 3(6), pages 1279-1317, December.
  6. Lauermann, Stephan, 2011. "Dynamic matching and bargaining games: A general approach," MPRA Paper 31717, University Library of Munich, Germany.
  7. Max Blouin & Roberto Serrano, 1998. "A Decentralized Market with Common Values Uncertainty: Non-Steady States," Working Papers 98-5, Brown University, Department of Economics, revised 10 Aug 1998.
  8. Gale, Douglas M, 1986. "Bargaining and Competition Part II: Existence," Econometrica, Econometric Society, vol. 54(4), pages 807-18, July.
  9. Satterthwaite, Mark & Shneyerov, Art, 2004. "Dynamic Matching,Two-sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition," Microeconomics.ca working papers shneyerov-04-12-17-02-54-, Vancouver School of Economics, revised 17 Dec 2004.
  10. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
  11. Gianni De Fraja & Jozsef Sakovics, 1999. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," ESE Discussion Papers 36, Edinburgh School of Economics, University of Edinburgh.
  12. Adam Wong & Artyom Shneyerov, 2007. "Bilateral Matching and Bargaining with Private Information," 2007 Meeting Papers 1032, Society for Economic Dynamics.
  13. Wolfram Merzyn & Gabor Virag & Stephan Lauermann, 2010. "Aggregate uncertainty and learning in a search model," 2010 Meeting Papers 1235, Society for Economic Dynamics.
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