Minimax regret and failure to converge to efficiency in large markets
Rachel C. Shafer
Games and Economic Behavior, 2020, vol. 124, issue C, 281-287
This paper studies minimax regret traders in a sealed bid double auction. Unlike the expected utility maximizers that populate typical market models, these traders do not determine their actions using a single prior. The analysis proves that, with no restrictions on beliefs about others' types and strategies, minimax regret traders will not converge to price-taking as the size of the market increases, contrary to standard economic intuition. In fact, minimax regret traders' bids and asks are invariant to the number of traders in the market. Thus, the robustness of the sealed bid double auction is sensitive to traders' preferences.
Keywords: Double auctions; Regret minimization; Ambiguity; Decision theory; Mechanism design (search for similar items in EconPapers)
JEL-codes: C72 D44 D81 D82 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:124:y:2020:i:c:p:281-287
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