We analyze the competitive advantage of price signal information for traders in simulated double auctions. Previous work has established that more information about the price development does not guarantee higher performance. In particular, traders with limited information perform below market average and are outperformed by random traders; only insiders beat the market. However, this result has only been shown in markets with a few traders and a uniform distribution over information levels. We present additional simulations of several more realistic information distributions, extending previous findings. In addition, we analyze the market dynamics with an evolutionary model of competing information levels. Results show that the highest information level will dominate if information comes for free. If information is costly, less-informed traders may prevail reflecting a more realistic distribution over information levels.
Paper
Full text
Evolutionary advantage of foresight in markets
Semantic Scholar · Economics · 2012
Abstract
We analyze the competitive advantage of price signal information for traders in simulated double auctions. Previous work has established that more information about the price development does not guarantee higher performance. In particular, traders with limited information perform below market average and are outperformed by random traders; only insiders beat the market. However, this result has only been shown in markets with a few traders and a uniform distribution over information levels. We present additional simulations of several more realistic information distributions, extending previous findings. In addition, we analyze the market dynamics with an evolutionary model of competing information levels. Results show that the highest information level will dominate if information comes for free. If information is costly, less-informed traders may prevail reflecting a more realistic distribution over information levels.