Why Do Biased Heuristics Approximate Bayes Rule in Double Auctions?

Posted: 13 May 2002 Last revised: 10 Sep 2015

See all articles by Shyam Sunder

Shyam Sunder

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

Karim Jamal

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2001

Abstract

Jamal and Sunder [Journal of Economic Behavior and Organization, 32 (1966) 273] 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, Bayaesian Equilibrium, Double Auction, Biased Heuristics

JEL Classification: A12, C11, D44, D81

Suggested Citation

Sunder, Shyam and Jamal, Karim, Why Do Biased Heuristics Approximate Bayes Rule in Double Auctions? (2001). Journal of Economic Behavior & Organization, Vol. 46, pp. 431-435, 2001; University of Alberta School of Business Research Paper 2013-1020. Available at SSRN: https://ssrn.com/abstract=303388

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

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)

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