IEL-CDA model: A more accurate theory of behavior in continuous double auctions

Anufriev, M; Arifovic, J; Donmez, A; Ledyard, J; Panchenko, V

IEL-CDA model: A more accurate theory of behavior in continuous double auctions

Anufriev, M

Arifovic, J Donmez, A Ledyard, J Panchenko, V

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Publisher:: Elsevier
Publication Type:: Journal Article
Citation:: Journal of Economic Dynamics and Control, 2024, pp. 104840
Issue Date:: 2024-01-01

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Field	Value	Language
dc.contributor.author	Anufriev, M https://orcid.org/0000-0002-1842-6814
dc.contributor.author	Arifovic, J
dc.contributor.author	Donmez, A
dc.contributor.author	Ledyard, J
dc.contributor.author	Panchenko, V
dc.date.accessioned	2024-09-20T02:18:41Z
dc.date.available	2024-09-20T02:18:41Z
dc.date.issued	2024-01-01
dc.identifier.citation	Journal of Economic Dynamics and Control, 2024, pp. 104840
dc.identifier.issn	0165-1889
dc.identifier.uri	http://hdl.handle.net/10453/180884
dc.description.abstract	The continuous double auction (CDA) is a well-studied and widely used trading institution. However, there is no universally accepted theory regarding the dynamics of price formation, especially within the first period, that has endured experimental testing. In this paper, we introduce a behavioral model called IEL-CDA, which builds upon the Individual Evolutionary Learning (IEL) model of Arifovic et al. (2022). We enhance IEL by (a) incorporating Marshallian Selection, favoring traders with a higher expected surplus in making offers, and (b) allowing a trader's hypothetical reasoning to depend on the history of transactions. Using new experimental data, we test the hypothesis that efficiencies and average prices observed in the experiments follow the same distribution as those produced by simulations with various models. The hypothesis is rejected for both the Zero Intelligent theory of Gode and Sunder (1993) and IEL; however, it is not rejected for IEL-CDA. Therefore, IEL-CDA emerges as a more accurate theory of behavior in the continuous double auction.
dc.language	en
dc.publisher	Elsevier
dc.relation.ispartof	Journal of Economic Dynamics and Control
dc.relation.isbasedon	10.1016/j.jedc.2024.104840
dc.rights	info:eu-repo/semantics/restrictedAccess
dc.subject	1401 Economic Theory, 1402 Applied Economics, 1502 Banking, Finance and Investment
dc.subject.classification	Economics
dc.subject.classification	3502 Banking, finance and investment
dc.subject.classification	3802 Econometrics
dc.subject.classification	3803 Economic theory
dc.title	IEL-CDA model: A more accurate theory of behavior in continuous double auctions
dc.type	Journal Article
utslib.for	1401 Economic Theory
utslib.for	1402 Applied Economics
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	University of Technology Sydney
pubs.organisational-group	University of Technology Sydney/Faculty of Business
pubs.organisational-group	University of Technology Sydney/Faculty of Business/Economics Discipline
pubs.organisational-group	University of Technology Sydney/UTS Groups
pubs.organisational-group	University of Technology Sydney/UTS Groups/Centre for Behavioural Science and Policy Design (CBSPD)
pubs.organisational-group	University of Technology Sydney/UTS Groups/Centre for Climate Risk and Resilience (CCRR)
pubs.organisational-group	University of Technology Sydney/UTS Groups/Centre for Climate Risk and Resilience (CCRR)/Associate Members
utslib.copyright.status	in_progress	*
dc.date.updated	2024-09-20T02:18:39Z
pubs.publication-status	Published

Abstract:

The continuous double auction (CDA) is a well-studied and widely used trading institution. However, there is no universally accepted theory regarding the dynamics of price formation, especially within the first period, that has endured experimental testing. In this paper, we introduce a behavioral model called IEL-CDA, which builds upon the Individual Evolutionary Learning (IEL) model of Arifovic et al. (2022). We enhance IEL by (a) incorporating Marshallian Selection, favoring traders with a higher expected surplus in making offers, and (b) allowing a trader's hypothetical reasoning to depend on the history of transactions. Using new experimental data, we test the hypothesis that efficiencies and average prices observed in the experiments follow the same distribution as those produced by simulations with various models. The hypothesis is rejected for both the Zero Intelligent theory of Gode and Sunder (1993) and IEL; however, it is not rejected for IEL-CDA. Therefore, IEL-CDA emerges as a more accurate theory of behavior in the continuous double auction.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/180884