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http://ssrn.com/abstract=354124
 
 

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A Simple Decentralized Institution for Learning Competitive Equilibrium


Shyam Sunder


Yale University - School of Management

Sean Crockett


Baruch College (CUNY) - Zicklin School of Business - Department of Economics and Finance

Stephen Spear


Carnegie Mellon University - Financial Economics

November 2002

Yale ICF Working Paper No. 02-43

Abstract:     
The epsilon-intelligent competitive equilibrium algorithm is a decentralized alternative to Walrus' tatonnement procedure for markets to arrive at competitive equilibrium. We build on the Gode-Spear-Sunder zero-intelligent algorithm in which random generation of bids and offers from agents' welfare-enhancing opportunity sets generates Pareto optimal allocations in a pure exchange economy. We permit agents to know if they are subsidizing others at such allocations, and to veto such allocations, restricting the subsequent iterations of the algorithm only to those trades that are both Pareto-improving and provide strictly greater wealth, and ultimately utility, for such agents. In this simple institution actions of minimally intelligent agents based on local information can lead the market to approximate competitive equilibrium in a larger set of economies than the tatonnement process would allow. This helps address one of the major shortcomings of the Arrow-Debreu-McKenzie model with respect to the instability of tatonnement in an open set of economies. It also addresses the behavioral critique of mathematically derived equilibria for the inability of cognitively-limited humans to maximize. The proof of convergence of the algorithm presented here also provides a way of showing the existence of competitive equilibrium for monotonic, convex exchange economies with heterogeneous agents and many goods without application of a fixed-point theorem.

Number of Pages in PDF File: 26

Keywords: Learning Competitive Equilibrium, Minimal Rationality, Allocative Efficiency, Scarfs' Example

JEL Classification: C63, C68, D44, D51, D58, D61

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Date posted: December 2, 2002  

Suggested Citation

Sunder, Shyam and Crockett, Sean and Spear, Stephen, A Simple Decentralized Institution for Learning Competitive Equilibrium (November 2002). Yale ICF Working Paper No. 02-43. Available at SSRN: http://ssrn.com/abstract=354124 or http://dx.doi.org/10.2139/ssrn.354124

Contact Information

Shyam Sunder
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/
Sean Crockett
Baruch College (CUNY) - Zicklin School of Business - Department of Economics and Finance ( email )
17 Lexington Ave., Box B10-225
New York, NY 10010
United States
646-312-3520 (Phone)
Stephen E. Spear (Contact Author)
Carnegie Mellon University - Financial Economics ( email )
GSIA
Schenley Park
Pittsburgh, PA 15213
United States
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