Abstract
If a market is considered to be a social choice function, then the domain of admissible preferences is restricted and standard social choice theorems do not apply. A substantial body of analysis, however, strongly supports the notion that attractive strategy-proof social choice functions do not exist in market settings. Yet price theory, which implicitly assumes the strategy-proofness of markets, performs quite well in describing many real markets. This paper resolves this paradox in two steps. First, given that a market is not strategy-proof, it should be modeled as a Bayesian game of incomplete information. Second, a double auction market, which is perhaps the simplest operationalization of supply and demand as a Bayesian game, is approximately strategy-proof even when the number of traders on each side of the market is quite moderate.
Original language | English (US) |
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Pages (from-to) | 37-58 |
Number of pages | 22 |
Journal | Social Choice and Welfare |
Volume | 18 |
Issue number | 1 |
DOIs | |
State | Published - 2001 |
ASJC Scopus subject areas
- Social Sciences (miscellaneous)
- Economics and Econometrics