Money pumps in the market

Ariel Rubinstein, Ran Spiegler

    Research output: Contribution to journalArticle

    Abstract

    Agents who employ non-rational choice procedures are often vulnerable to exploitation, in the sense that a profit-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 in an inter-temporal market mechanism, in the form of speculative trade in an asset of no intrinsic value.

    Original languageEnglish (US)
    Pages (from-to)237-253
    Number of pages17
    JournalJournal of the European Economic Association
    Volume6
    Issue number1
    DOIs
    StatePublished - Mar 1 2008

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    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

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