Dealers, insiders and bandits : learning and its effects on market outcomes

This thesis seeks to contribute to the understanding of markets populated by boundedly rational agents who learn from experience. Bounded rationality and learning have both been the focus of much research in computer science, economics and finance theory. However, we are at a critical stage in defining the direction of future research in these areas. It is now clear that realistic learning problems faced by agents in market environments are often too hard to solve in a classically rational fashion. At the same time, the greatly increased computational power available today allows us to develop and analyze richer market models and to evaluate different learning procedures and algorithms within these models. The danger is that the ease with which complex markets can be simulated could lead to a plethora of models that attempt to explain every known fact about different markets. The first two chapters of this thesis define a principled approach to studying learning in rich models of market environments, and the rest of the thesis provides a proof of concept by demonstrating the applicability of this approach in modeling settings drawn from two different broad domains, financial market microstructure and search theory. In the domain of market microstructure, this thesis extends two important models from the theoretical finance literature.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Electrical Engineering and Computer Science.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2006

Author dc:creator

• Das, Sanmay, 1979-

Advisor dc:contributor.advisor

• Tomaso Poggio and Andrew W. Lo.

• Electrical Engineering and Computer Science.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/37916

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/37916