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Money pumps in the market

Rubinstein, A.; Spiegler, R.; (2006) Money pumps in the market. (ELSE Working Papers 224). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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Abstract

Agents who employ non-rational choice procedures are often vulnerable to exploitation, in the sense that a pro�t-seeking trader can offer them a harmful transaction which they will nevertheless accept. We examine the vulnerability of a procedure for deciding whether to buy a lottery: observe another agent who already bought it and buy the lottery if that agent's experience was positive. We show that the exploitation of such agents can be embedded through speculative trade in a market for an asset of no intrinsic value. However, the market mechanism imposes a limit on the magnitude of exploitation.

Type: Working / discussion paper
Title: Money pumps in the market
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php#2006
Language: English
Keywords: Bounded rationality, money pumps, dutch books, mar- ket exploitation, speculative trade, S(1) procedure
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14502
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