A simple testable model of double auction markets
نویسنده
چکیده
We propose a model of price formation in Double Auction markets which employs the strong simplifying assumption that agents neglect strategic feedback effects and regard themselves as playing a Game against Nature. Agents otherwise are strict expected utihty maximizers employing Bayesian updating procedures. We prove the optimality of simple (‘aggressive reservation price’) strategies in our general model and propose a parametric form that yields very detailed and computable predictions of market behavior.
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