Big Data

Out-of-Equilibrium Dynamics With Decentralized Exchange: Cautious Trading And Convergence To Efficiency

Date Added: Mar 2010
Format: PDF

Is the result that equilibrium trading outcomes are efficient in markets without frictions robust to a scenario where agents' beliefs and plans aren't already aligned at their equilibrium values? In this paper, starting from a situation where agents' beliefs and plans aren't already aligned at their equilibrium values, the authors study whether out-of-equilibrium trading converges to efficient allocations. They show that out-of-equilibrium trading does converge with probability 1 to an efficient allocation even when traders have limited information and trade cautiously.