Using time as a strategic element in continuous double auctions

Abstract

Numerous pricing strategies have been proposed and incorporated into software trading agents. Early simulation experiments have shown that markets are efficient even with only a few traders placing randomly priced offers at each time step using the Zero-Intelligence strategy. This article investigates the strategic effect of timing on the performance of trader profits and market efficiency. The trading strategies Zero-Intelligence and Zero-Intelligence-Plus are enhanced by new timing strategies, replacing their heuristics with random and strategic behavior. As expected, agents make less profit with random timing against the heuristic. However, market efficiency remains the same, confirming that continuous double auctions are highly efficient mechanisms even with traders placing profitable offers with random prices and timing. Furthermore, Zero-Intelligence-Plus agents also achieve high efficiency, but strategic timing reduces the risk of being exploited by trading far from the equilibrium price. Thus, there is a clear individual incentive to exploit timing strategically. © 2012 Springer-Verlag.