Why Do Biased Heuristics Approximate Bayes Rule in Double Auctions?
8 Pages Posted: 7 Jun 2001 Last revised: 15 Sep 2015
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Why Do Biased Heuristics Approximate Bayes Rule in Double Auctions?
Why Do Biased Heuristics Approximate Bayes Rule in Double Auctions?
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: Suggested Citation
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