“Zero Intelligence in an Edgeworth Box” (R&R Journal of Behavioral and Experimental Finance)

Abstract: This paper expands on the continuous double auction trader behavior literature, providing a general-equilibrium-suited version of Gode and Sunder’s (1993) “zero intelligence” (ZI) model. While the original authors of ZI (Gode, Spear, and Sunder, 2004) have proposed a venture into trader behavior in the Edgeworth box, the model proposed here generalizes to a much further extent and provides a lower level of “zero” intelligence. Agents participate as two-way traders with utility functions and allocations giving them a natural market-side of preference. Orders are chosen randomly upon entry, with a lattice of bundles of the market’s two goods providing the potential landing spots (upon potential future full acceptance of the order). I test the major assumptions of the model as well as many of the rules implicit in the CDA environment via simulation, providing a GE investigation analogous to the PE literature analyzing the original ZI model.

 

“Duality and Yquilibrium” with Jacob K. Goeree and Jason Tayawa {PDF}

Abstract: We present a novel duality in vector optimization that provides an alternative characterization of Walrasian equilibrium. We demonstrate that equilibrium existence and the welfare theorems are a direct consequence of duality. By scalarizing the vector optimization problems, we further demonstrate that Walrasian equilibria are the maximizers, and roots, of a single function of allocation and prices – the economy’s potential. We illustrate the usefulness of the potential for computing equilibria.

 

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"Paretian Equilibrium" with Jacob K. Goeree

Abstract:  We introduce a simple quantity dynamic in which consumers are buyers (sellers) of a good if their marginal utility for that good is above (below) average. We demonstrate this dynamic converges to a Pareto optimal allocation in any exchange economy irrespective of the prices at which trade occurs. Together the Pareto optimal allocation and trade prices define a Paretian equilibrium. Walrasian equilibria, which subsume “correct” prices, are degenerate Paretian equilibria without any price dispersion. Data from a laboratory exchange economy exhibit the price variability predicted by Paretian equilibrium and refute the Walrasian hypothesis.

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“LEAPE: Learning More-General Paretian Equilibrium” with Jacob K. Goeree

Abstract: We introduce LEAPE, a parameter-free model of trader behavior in multiple inter-linked markets. Transaction prices inform traders about the likelihood certain prices are acceptable. Traders submit limit orders accordingly or accept others’ limit orders. We demonstrate this simple learning model reproduces data patterns from prior general equilibrium experiments, whether observed prices converged, kept cycling, or led to odd outcomes. In each simulated replication, LEAPE predicts the more-general Paretian equilibrium outcomes recently proposed by Goeree and Williams (2023).

Conferences/Seminars: 2023 ANZWEE, 2023 European ESA Meeting, Sydney Experimental BrownBag (SEBB 2024), CEF 30th, FUR 2024, 2024 ANZWEE

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“Minimal Intelligence in the Double Auction: Logit-Choice and Reservation Utility”  {PDF}

Abstract: I propose a new boundedly-rational trader-behavior model for the continuous double auction, fit in the general equilibrium framework. Traders’ order placement and acceptance strategies are driven by GE-adaptions of two classic mechanisms: within-period reservation prices (here utilities) (Friedman (1991)), and price-acceptability beliefs (Gjerstad and Dickhaut (1998)). Reservation utilities are considered from both a buying and selling standpoint. Reservation utility associated with the side of entry is used to gauge immediate acceptability of contra-side orders while contra-side reservation utility informs the trader of admissible orders for placement. Traders place logit choice probabilities over their set of admissible orders, based on beliefs formed about
the acceptability of each order. The logit choice parameter allows the precision of trader order placement to range from uniformly random to perfectly maximizing given beliefs (mapping the range of trader behavior from Gode and Sunder (1993) to Gjerstad and Dickhaut (1998)). Simulations report market performance for this model, finding promising measures of efficiency and evidence of convergence to nearly Pareto optimal allocations.

Conferences: 2020 ESA Global

*Formerly titled "Expanding minimal intelligence in the double auction"​

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