Money pumps in the market

Research output: Contribution to journalArticlepeer-review

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

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