Simple Agents, Intelligent Markets

Karim Jamal, Michael Maier and Shyam Sunder
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Karim Jamal: University of Alberta
Michael Maier: University of Alberta

No 1868R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate agents� private information to others. Markets populated by human agents are known to be capable of converging to rational expectations equilibria. This paper reports comparable market outcomes when human agents are replaced by boundedly-rational algorithmic agents who use a simple means-end heuristic. These algorithmic agents lack the capability to optimize; yet outcomes of markets populated by them converge near the equilibrium derived from optimization assumptions. These findings point to market structure (rather than cognition or optimization) being an important determinant of efficient aggregate level outcomes.

Keywords: Bounded rationality; Dissemination of asymmetric information; Efficiency of security markets; Minimally-rational agents; Rational expectations; Structural properties of markets (search for similar items in EconPapers)
JEL-codes: C92 D44 D50 D70 D82 G14 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2012-07, Revised 2015-03
New Economics Papers: this item is included in nep-cta, nep-mic and nep-ore
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Published in Computational Economics (May 2016)

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