The Importance of Memory for Price Discovery in Decentralized Markets

31 Pages Posted: 24 Oct 2017 Last revised: 30 Jan 2019

See all articles by Jacob Leshno

Jacob Leshno

Chicago Booth

Bary Pradelski

CNRS, Université Grenoble Alpes

Date Written: January 28, 2019

Abstract

We study the dynamics of price discovery in decentralized two-sided markets. There exist memoryless dynamics that converge to the core in which agents' actions depend only on their current payoff. However, we show that for any such dynamic the convergence time can grow exponentially in the population size. We present a natural dynamic in which a player's reservation value provides a summary of her past information and show that this dynamic converges to the core in polynomial time. In addition, the strategies implied by the dynamic are incentive compatible in a broad class of markets.

Keywords: Assignment Game, Price Discovery, Information, Convergence Time

Suggested Citation

Leshno, Jacob and Pradelski, Bary, The Importance of Memory for Price Discovery in Decentralized Markets (January 28, 2019). Available at SSRN: https://ssrn.com/abstract=3057554 or http://dx.doi.org/10.2139/ssrn.3057554

Jacob Leshno

Chicago Booth ( email )

5807 S. Woodlawn Ave
Chicago, IL 60610
United States

Bary Pradelski (Contact Author)

CNRS, Université Grenoble Alpes ( email )

Grenoble
France

HOME PAGE: http://cnrs.fr

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