Modelling Market Interaction
Start date: 01 May 2009,
End date: 30 Apr 2011
"It is widely recognised that the standard notion of market equilibrium omits many aspects of how real markets function. Who sets prices, who trades with whom and how the market settles, if it does on a single price for each good are largely unanswered questions. To obtain an understanding of how markets actually function and their dynamics, we have to allow for the different degrees of rationality of market participants, learning mechanisms and the structure of the interactions between the various agents. The idea of this project is to base the analysis on observed empirical facts and the basic claim is that markets have to be analysed as complex adaptive systems, where each institution and set of rules influences individual behaviours in a specific way. Our modelling approach is a mix of different research methodologies: empirical, theoretical, experimental, and computational. The present project will concentrate on two market environments, i.e., perishable goods market and electricity markets. In the former, the goods are not storable and thus inter-temporal arbitrage opportunities do not occur, whereas the latter is a paradigmatic example of complex market where multi-settlement market mechanisms are a standard feature. This research will have a strong social impact as poorly functioning market mechanisms can lead to high prices and to price discrimination, which are current strong concerns in Europe as a result of the recent increase in inflation and the complicated contagious feedback from prices to expectations and consumer confidence. My training in computer science, engineering and economics gives me the necessary experimental and theoretical background to carry out this study. Very encouraging preliminary results have already been obtained in collaboration with the research group in Marseille and within the context of the STREP, “ComplexMarkets”. The project results should be of interest to a wide audience of researchers in economics and to policymakers."
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