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Why do Biased Heuristics Approximate Bayes Rule in Double Auctions?


Shyam Sunder


Yale University - School of Management

Karim Jamal


University of Alberta - Department of Accounting, Operations & Information Systems
August 2000

Yale SOM Working Paper No. ES-12

Abstract:     
Jamal and Sunder (1996) showed that the median prices in double auctions populated by zero-intelligence (ZI) traders whose trading limits are set by two biased heuristics tend to converge to the same equilibrium as if their trading limits were set by applying Bayes' Rule. This note provides an analytical explanation of why the repeated use of biased heuristics approximates Bayes rule.

Number of Pages in PDF File: 8

Keywords: Aggregate Market Rationality, Bayesian Equilibrium, Double Auction, Biased Heuristics

JEL Classification: A12, C11, D44, D81

working papers series


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Date posted: June 7, 2001  

Suggested Citation

Sunder, Shyam and Jamal, Karim, Why do Biased Heuristics Approximate Bayes Rule in Double Auctions? (August 2000). Yale SOM Working Paper No. ES-12. Available at SSRN: http://ssrn.com/abstract=272450 or http://dx.doi.org/10.2139/ssrn.272450

Contact Information

Shyam Sunder (Contact Author)
Yale University - School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)
203-432-6974 (Fax)
HOME PAGE: http://www.som.yale.edu/faculty/sunder/
Karim Jamal
University of Alberta - Department of Accounting, Operations & Information Systems ( email )
Edmonton, Alberta T6G 2R6
Canada
780-492-5829 (Phone)
780-492-3325 (Fax)

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