Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality Export

@article{Gode1993Allocative, abstract = {We report market experiments in which human traders are replaced by "zero-intelligence" programs that submit random bids and offers. Imposing a budget constraint (i.e., not permitting traders to sell below their costs or buy above their values) is sufficient to raise the allocative efficiency of these auctions close to 100 percent. Allocative efficiency of a double auction derives largely from its structure, independent of traders' motivation, intelligence, or learning. Adam Smith's invisible hand may be more powerful than some may have thought; it can generate aggregate rationality not only from individual rationality but also from individual irrationality.}, author = {Gode, Dhananjay K. and Sunder, Shyam}, citeulike-article-id = {1353785}, citeulike-linkout-0 = {http://dx.doi.org/10.2307/2138676}, citeulike-linkout-1 = {http://www.jstor.org/stable/2138676}, doi = {10.2307/2138676}, issn = {00223808}, journal = {The Journal of Political Economy}, keywords = {computational-economics, trading-strategy}, number = {1}, pages = {119--137}, posted-at = {2009-08-27 14:15:40}, priority = {2}, publisher = {The University of Chicago Press}, title = {Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality}, url = {http://dx.doi.org/10.2307/2138676}, volume = {101}, year = {1993} }

TY - JOUR ID - Gode1993Allocative L3 - citeulike-article-id:1353785 N2 - We report market experiments in which human traders are replaced by "zero-intelligence" programs that submit random bids and offers. Imposing a budget constraint (i.e., not permitting traders to sell below their costs or buy above their values) is sufficient to raise the allocative efficiency of these auctions close to 100 percent. Allocative efficiency of a double auction derives largely from its structure, independent of traders' motivation, intelligence, or learning. Adam Smith's invisible hand may be more powerful than some may have thought; it can generate aggregate rationality not only from individual rationality but also from individual irrationality. IS - 1 JF - The Journal of Political Economy SN - 00223808 EP - 137 TI - Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality PB - The University of Chicago Press VL - 101 SP - 119 KW - computational-economics KW - trading-strategy AU - Gode, Dhananjay AU - Sunder, Shyam PY - 1993/// UR - http://dx.doi.org/10.2307/2138676 ER -