Chapter 4 Zero-Intelligence Robots and the Double Auction Market: A Graphical Tour

This chapter illustrates the behavior of Zero-Intelligence (ZI) Robots in double auction markets and offer some comparison with humans . The behavior of these robots is very simple: they simply choose a random bid or ask over a range of prices constrained by their budget and the market improvement rules. The goal of this chapter is to compare the behavior of markets populated with simple robots to markets populated by humans. As there is clearly a lot more that could be done, sufficient detail about the market, environment, and robots are provided so that an advanced undergraduate or graduate student could easily develop their own ZI robot and market software. A series of graphs summarizes some important features of various humans and robots in a variety of double auction environments. After breaking the ZI robots in the new environment, the UNIT robots are introduced to show how making robot behavior dependent on the previous market transaction price can yield stability in situations with continuously order flow.