Trading in markets with noisy information: an evolutionary analysis

Daan Bloembergen*, Daniel Hennes, Peter McBurney, Karl Tuyls

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

12 Citations (Scopus)

Abstract

We analyse the value of information in a stock market where information can be noisy and costly, using techniques from empirical game theory. Previous work has shown that the value of information follows a J-curve, where averagely informed traders perform below market average, and only insiders prevail. Here we show that both noise and cost can change this picture, in several cases leading to opposite results where insiders perform below market average, and averagely informed traders prevail. Moreover, we investigate the effect of random explorative actions on the market dynamics, showing how these lead to a mix of traders being sustained in equilibrium. These results provide insight into the complexity of real marketplaces, and show under which conditions a broad mix of different trading strategies might be sustainable.

Original languageEnglish
Pages (from-to)253-268
Number of pages16
JournalCONNECTION SCIENCE
Volume27
Issue number3
Early online date5 May 2015
DOIs
Publication statusPublished - 3 Jul 2015

Keywords

  • auctions
  • evolutionary game theory
  • value of information

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