Decoupling Markets and Individuals: Rational Expectations Equilibrium Outcomes from Information Dissemination Among Boundedly-Rational Traders

31 Pages Posted: 1 Aug 2012 Last revised: 12 Jun 2013

See all articles by Karim Jamal

Karim Jamal

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

Michael S. Maier

University of Alberta - Alberta School of Business

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Date Written: July 30, 2012

Abstract

Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate traders’ private information to others. It is known that markets populated by asymmetrically-informed profit-motivated human traders can converge to rational expectations equilibria. This paper reports comparable market outcomes when human traders are replaced by boundedly-rational algorithmic agents who use a simple means - end heuristic. These algorithmic agents lack the capability to optimize; yet outcomes of markets populated by them converge near the equilibrium derived from optimization assumptions. These findings suggest that market structure is an important determinant of efficient aggregate level outcomes, and that care is necessary not to overstate the importance of human cognition and conscious optimization in such contexts.

Keywords: Bounded rationality, Dissemination of asymmetric information, Efficiency of security markets, Minimally-rational agents, Rational expectations, Structural properties of markets

JEL Classification: C92, D44, D50, D70, D82, G14

Suggested Citation

Jamal, Karim and Maier, Michael and Sunder, Shyam, Decoupling Markets and Individuals: Rational Expectations Equilibrium Outcomes from Information Dissemination Among Boundedly-Rational Traders (July 30, 2012). University of Alberta School of Business Research Paper No. 2013-1014; Cowles Foundation Discussion Paper No. 1868. Available at SSRN: https://ssrn.com/abstract=2120019 or http://dx.doi.org/10.2139/ssrn.2120019

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)

Michael Maier

University of Alberta - Alberta School of Business ( email )

2-30C Business Building
Edmonton, Alberta T6G 2R6
Canada
7802481275 (Phone)

HOME PAGE: http://https://business.ualberta.ca/about/contact-us/school-directory/michael-maier

Shyam Sunder (Contact Author)

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
70
Abstract Views
665
rank
331,830
PlumX Metrics