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Social and Behavioral Sciences Commons™
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Full-Text Articles in Social and Behavioral Sciences
Simple Agents, Intelligent Markets, Karim Jamal, Michael Maier, Shyam Sunder
Simple Agents, Intelligent Markets, Karim Jamal, Michael Maier, Shyam Sunder
Cowles Foundation Discussion Papers
Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate agents’ private information to others. Markets populated by human agents are known to be capable of converging to rational expectations equilibria. This paper reports comparable market outcomes when human agents are replaced by boundedly-rational algorithmic agents who use a simple means-end heuristic. These algorithmic agents lack the capability to optimize; yet outcomes of markets populated by them converge near the equilibrium derived from optimization assumptions. These findings point to market structure (rather than cognition or optimization) being an important determinant of efficient aggregate level outcomes.
Decoupling Markets And Individuals: Rational Expectations Equilibrium Outcomes From Information Dissemination Among Boundedly-Rational Traders, Karim Jamal, Michael Maier, Shyam Sunder
Decoupling Markets And Individuals: Rational Expectations Equilibrium Outcomes From Information Dissemination Among Boundedly-Rational Traders, Karim Jamal, Michael Maier, Shyam Sunder
Cowles Foundation Discussion Papers
Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate traders’ private information to others. It is known that markets populated by asymmetrically-informed profit-motivated human traders can converge to rational expectations equilibria. This paper reports comparable market outcomes when human traders are replaced by boundedly-rational algorithmic agents who use a simple means-end heuristic. These algorithmic agents lack the capability to optimize; yet outcomes of markets populated by them converge near the equilibrium derived from optimization assumptions. These findings suggest that market structure is an important determinant of efficient aggregate level outcomes, and that care is …
Bounded Rationality And Limited Datasets: Testable Implications, Identification, And Out-Of-Sample Prediction, Geoffroy De Clippel, Kareen Rozen
Bounded Rationality And Limited Datasets: Testable Implications, Identification, And Out-Of-Sample Prediction, Geoffroy De Clippel, Kareen Rozen
Cowles Foundation Discussion Papers
Theories of bounded rationality are typically characterized over an exhaustive data set. How does one tell whether observed choices are consistent with a theory if the data is incomplete? How can out-of-sample predictions be made? What can be identified about preferences? This paper aims to operationalize some leading bounded rationality theories when the available data is limited, as is the case in most practical settings. We also point out that the recent bounded rationality literature has overlooked a methodological pitfall that can lead to ‘false positives’ and ‘empty’ out-of-sample predictions when testing choice theories with limited data.