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Minimax regret and failure to converge to efficiency in large markets

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  • Shafer, Rachel C.

Abstract

This paper studies minimax regret traders in a sealed bid double auction. Unlike the expected utility maximizers that populate typical market models, these traders do not determine their actions using a single prior. The analysis proves that, with no restrictions on beliefs about others' types and strategies, minimax regret traders will not converge to price-taking as the size of the market increases, contrary to standard economic intuition. In fact, minimax regret traders' bids and asks are invariant to the number of traders in the market. Thus, the robustness of the sealed bid double auction is sensitive to traders' preferences.

Suggested Citation

  • Shafer, Rachel C., 2020. "Minimax regret and failure to converge to efficiency in large markets," Games and Economic Behavior, Elsevier, vol. 124(C), pages 281-287.
    • Handle: RePEc:eee:gamebe:v:124:y:2020:i:c:p:281-287
    DOI: 10.1016/j.geb.2020.07.010
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    References listed on IDEAS

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    More about this item

    Keywords

    Double auctions; Regret minimization; Ambiguity; Decision theory; Mechanism design;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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