Need, Greed and Noise: Competing Strategies in a Trading Model

TL;DR

This paper analyzes an economic trading model where agents use need, greed, or noise strategies, revealing how their effectiveness depends on market composition and can lead to complex competitive hierarchies.

Contribution

It introduces a model comparing three trading strategies and demonstrates how their relative success varies with market conditions and strategy mix.

Findings

Optimal strategy depends on market composition.

Presence of all strategies can create cyclical dominance.

Strategy effectiveness varies with strategy mix.

Abstract

We study an economic model where agents trade a variety of products by using one of three competing rules: "need", "greed" and "noise". We find that the optimal strategy for any agent depends on both product composition in the overall market and composition of strategies in the market. In particular, a strategy that does best on pairwise competition may easily do much worse when all are present, leading, in some cases, to a "paper, stone, scissors" circular hierarchy.