Download Supply and Demand from the Bottom Up aka Zero

Supply and Demand
from the
Bottom Up
aka
Zero-Intelligence Traders
Rob Axtell
Brookings and Santa Fe
Outline
• Experiment: “The Market for Apples”
– From Bergstrom and Miller, Experiments with
Economic Principles”
• Agent-based model of your behavior
– Simplest possible model
– Object-oriented implementation
• Gode and Sunder: “Zero-Intelligence”
traders
Experiment
• Each of you is either a buyer or seller
• Buyers:
– Have internal value
– Wish to acquire 1 unit
• Sellers:
– Have cost to cover
– Wish to sell 1 unit
• Market proceeds until no further trades
possible
Round 1
30
25
20
15
10
5
3
6
9
12
15
18
Round 2
30
25
20
15
10
5
3
6
9
12
15
18
Zero-Intelligence Traders
• Population of agents
• Random matching of buyers and sellers
• If buyer.value > seller.cost then pick
random price between these limits
• Repeat until no more trades possible
• What is the distribution of prices?
• What is the quantity sold?
Summary
• Simple in-class experiment yields price
heterogeneity, quantity about right
• ‘Zero-intelligence’ trading model (random
pairing, random formation of ‘bid’ and ‘ask’
prices, random exchange price) is capable
of reproducing qualitiative results of the
experiments
• This represents a bottom-up model of
supply and demand