THE EFFECT OF BOUNDARY CONDITIONS ON EFFICIENCY AND PRICING IN DOUBLE‐AUCTION MARKETS WITH ZERO‐INTELLIGENCE AGENTS

Ross Miller

Intelligent Systems in Accounting, Finance and Management, 2012, vol. 19, issue 3, 179-188

Abstract: The computational tractability of many markets with computerized agents requires they be subject to boundary conditions that are both unnecessary and undesirable in markets with humans. In particular, double‐auction markets with zero‐intelligence agents, which are a standard baseline in computational economics, constrain all bids, offers and trade prices to lie between an upper and a lower bound. This paper shows how changes in these boundary conditions influence pricing and efficiency. It is found that boundary conditions consistent with competitive pricing are generally inconsistent with the most efficient operation of those markets. Copyright © 2012 John Wiley & Sons, Ltd.

Date: 2012
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