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Simple Agents, Intelligent Markets

33 Pages Posted: 12 Aug 2014 Last revised: 3 Jun 2015

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: March 23, 2015

Abstract

Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate agents’ private information to others. Markets populated by human agents are known to be capable of converging to rational expectations equilibria. This paper reports comparable market outcomes when human agents 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 point to market structure (rather than cognition or optimization) being an important determinant of efficient aggregate level outcomes.

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 S. and Sunder, Shyam, Simple Agents, Intelligent Markets (March 23, 2015). Cowles Foundation Discussion Paper No. 1868R. Available at SSRN: https://ssrn.com/abstract=2478665

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

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