Why do Biased Heuristics Approximate Bayes Rule in Double Auctions?
Yale University - School of Management
University of Alberta - Department of Accounting, Operations & Information Systems
Yale SOM Working Paper No. ES-12
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, D81working papers series
Date posted: June 7, 2001
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