A Speculative Futures Market with Zero-Intelligence

This paper investigates the price formation of an artificial futures market with zero-intelligence traders. It extends the zero-intelligence model to speculative agents trading for immediacy on a futures exchange with open outcry, margin constraints, and real-time settlement. Like prior studies it finds that the imposition of scarcity, not intelligent optimization, is surprisingly good at producing allocative efficiency. The double auction trading mechanism even with open outcry and real-time settlement anchors prices to a dynamic Walrasian equilibrium, even when it is not unique. This study supports zero-intelligence agent-based methodology as a tool to isolate the impact of market microstructure, as opposed to information, on price formation.