The Importance of Memory for Price Discovery in Decentralized Markets
31 Pages Posted: 24 Oct 2017 Last revised: 30 Jan 2019
Date Written: January 28, 2019
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
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