HP Labs Technical Reports

More than Zero Intelligence Needed for Continuous Double-Auction Trading

Cliff, Dave; Bruten, Janet

HPL-97-157

Keyword(s): agent; market-based control; continuous double auction; trading

Abstract: Gode & Sunder's (1993) results from using "zero- intelligence" (ZI) traders, that act randomly within a continuous double-auction (CDA) market, appear to imply that human-like convergence to the theoretical equilibrium price in such markets is determined more by market structure than by the intelligence of the traders in that market. This paper presents a mathematical analysis that predicts serious failures in ZI-trader CDA markets. The analytical predictions are confirmed by computer simulations. Thus, more than zero intelligence is required of trading agents to yield human-like CDA market behavior.

6 Pages

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