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- Title
Speed traps: algorithmic trader performance under alternative market balances and structures.
- Authors
Peng, Yan; Shachat, Jason; Wei, Lijia; Zhang, S. Sarah
- Abstract
Using double auction market experiments with both human and agent traders, we demonstrate that agent traders prioritising low latency often generate, sometimes perversely so, diminished earnings in a variety of market structures and configurations. With respect to the benefit of low latency, we only find superior performance of fast-Zero Intelligence Plus (ZIP) buyers to human buyers in balanced markets with the same number of human and fast-ZIP buyers and sellers. However, in markets with a preponderance of agents on one side of the market and a noncompetitive market structure, such as monopolies and duopolies, fast-ZIP agents fall into a speed trap. In such speed traps, fast-ZIP agents capture minimal surplus and, in some cases, experience near first-degree price discrimination. In contrast, the trader performance of slow-ZIP agents is comparable to that of human counterparts, or even better in certain market conditions.
- Subjects
MARKET design &; structure (Economics); PRICE discrimination; BUYER'S market; SPEED; DUOPOLIES; ALGORITHMIC trading (Securities)
- Publication
Experimental Economics, 2024, Vol 27, Issue 2, p325
- ISSN
1386-4157
- Publication type
Article
- DOI
10.1007/s10683-023-09816-8