Evolutionary Stability of Behavioural Types in the Continuous Double Auction

In this paper, we investigate the effectiveness of different types of bidding behaviour for trading agents in the Continuous Double Auction (CDA). Specifically, we consider behavioural types that are neutral (expected profit maximising), passive (targeting a higher profit than neutral) and aggressive (trading off profit for a better chance of transacting). For these types, we employ an evolutionary game-theoretic analysis to determine the population dynamics of agents that use them in different types of environments, including dynamic ones with market shocks. From this analysis, we find that given a symmetric demand and supply, agents are most likely to adopt neutral behaviour in static environments, while there tends to be more passive than neutral agents in dynamic ones. Furthermore, when we have asymmetric demand and supply, agents invariably adopt passive behaviour in both static and dynamic environments, though the gain in so doing is considerably smaller than in the symmetric case.