Why Do Biased Heuristics Approximate Bayes Rule in Double Auctions?

8 Pages Posted: 7 Jun 2001 Last revised: 15 Sep 2015

See all articles by Karim Jamal

Karim Jamal

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

Shyam Sunder

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2000

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.

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

JEL Classification: A12, C11, D44, D81

Suggested Citation

Jamal, Karim and Sunder, Shyam, Why Do Biased Heuristics Approximate Bayes Rule in Double Auctions? (August 1, 2000). Yale SOM Working Paper No. ES-12. Available at SSRN: https://ssrn.com/abstract=272450 or http://dx.doi.org/10.2139/ssrn.272450

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)

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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