Tracking the invisible hand: Convergence of double auctions to competitive equilibrium

Antoni Bosch-Domènech and Shyam Sunder

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Economics is the science of want and scarcity. We show that want and scarcity, operating within a simple exchange institution (double auction), are sufficient for an economy consisting of multiple inter--related markets to attain competitive equilibrium (CE). We generalize Gode and Sunder's (1993a, 1993b) single--market finding to multi--market economies, and explore the role of the scarcity constraint in convergence of economies to CE. When the scarcity constraint is relaxed by allowing arbitrageurs in multiple markets to enter speculative trades, prices still converge to CE, but allocative efficiency of the economy drops. \\ Optimization by individual agents, often used to derive competitive equilibria, are unnecessary for an actual economy to approximately attain such equilibria. From the failure of humans to optimize in complex tasks, one need not conclude that the equilibria derived from the competitive model are descriptively irrelevant. We show that even in complex economic systems, such equilibria can be attained under a range of surprisingly weak assumptions about agent behavior.

Keywords: Competitive model; equilibrium; double auction; experimental economics; Leex (search for similar items in EconPapers)
JEL-codes: C92 D40 D44 (search for similar items in EconPapers)
Date: 1996-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Tracking the Invisible Hand: Convergence of Double Auctions to Competitive Equilibrium (2001)
Journal Article: Tracking the Invisible Hand: Convergence of Double Auctions to Competitive Equilibrium (2000)
Working Paper: Tracking the Invisible Hand: Convergence of Double Auctions to Competitive Equilibrium (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:91

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