Market Dynamics: Zero-Intelligence Double Auction

Market Setup

Traders per side 14

Cost shock (supply shift) +0

Trading speed 4/s

Live Readouts

Last trade price

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Equilibrium P*

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Trades / max Q*

0 / 0

Efficiency

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Trade price history

How it works

Each of N buyers privately knows a redemption value v (the most they'd pay); each of N sellers privately knows a cost c (the least they'd accept). Every tick, one unmatched buyer and one unmatched seller are drawn at random and each submits a random price:

ZI-Constrained:  bid ~ U(0, v_buyer)     ask ~ U(c_seller, Pmax)
ZI-Unconstrained: bid ~ U(0, Pmax)       ask ~ U(0, Pmax)
Trade occurs if bid ≥ ask, at price p = (bid + ask) / 2

Nobody here is rational or strategic — bids are literally random numbers. Yet Gode & Sunder (1993) showed that ZI-Constrained traders alone, with no intelligence at all, drive the market price to the competitive equilibrium and reach near-100% allocative efficiency, because the budget constraint (never bid above value, never ask below cost) is enough structure for the double-auction mechanism to do the rest. ZI-Unconstrained traders lack that constraint and can execute loss-making trades, so efficiency degrades even though the same random-matching mechanism is used.

The theoretical equilibrium is found by sorting valuations descending and costs ascending and finding where they cross:

Q* = largest k such that v_sorted[k] > c_sorted[k]
P* ≈ (v_sorted[Q*] + c_sorted[Q*]) / 2
Efficiency = realized surplus Σ(v−c) / theoretical max surplus

The cost-shock slider shifts every seller's cost up or down (e.g. an input-price or tariff shock), which shifts the effective supply curve and moves both Q* and P* — watch the equilibrium markers and bar heights respond.

Buyers (bar height = valuation) Sellers (bar height = cost) Already traded this session

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