Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/221611
Authors: 
Satterthwaite, Mark A.
Year of Publication: 
1999
Series/Report no.: 
Discussion Paper 1255
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. Yetprice theory, which implicityly assumes the strategy-proofness of markets, performs quie 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.
Document Type: 
Working Paper

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