A Necessary and Sufficient Condition for Convergence of Statistical to Strategic Equilibria of Market Games


Dimitrios P. Tsomocos

Said Business School & St. Edmund Hall , University of Oxford and Financial Markets Group, LSE

Dimitris Voliotis

Department of Economics, University of Athens and Council of Economic Advisers, Hellenic Ministry of Economy & Finance
 

Abstract

We analyze a market game where traders are heterogeneous with respect to their rationality level and have asymmetric information. The market mechanism results into a statistical equilibrium, where traders randomise among their available actions due to their limited rationality. We provide a necessary and sufficient condition for convergence of statistical to strategic equilibria of market games, when traders become more informed and increasingly more rational.
 

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