The Complexity of Exchange

The computational complexity of two classes of market mechanisms is compared. First the Walrasian interpretation in which prices are centrally computed by an auctioneer. Recent results on the computational complexity are reviewed. The non-polynomial complexity of these algorithms makes Walrasian general equilibrium an implausible conception. Second, a decen-tralised picture of market processes is described, involving concurrent exchange within tran-sient coalitions of agents. These processes feature price dispersion, yield allocations that are not in the core, modify the distribution of wealth, are always stable, but path-dependent. Replacing the Walrasian framing of markets requires substantial revision of conventional wisdom concerning markets. 1. Markets and the Emergence of Prices Consider the following strategic environment. There is a heterogeneous popula-tion of autonomous entities, each of whom has internal states that describe its self-interest as well as certain external states. Each entity is engaged in purposive activity to further its interests, including altering its external state in exchange for alterations in the external states of other agents. Each individual receives infor

Algorithm · Computational complexity theory · Economics · Framing (construction · General equilibrium theory · Interpretation (philosophy · Mathematical economics · Microeconomics · Path (computing · Complex Systems and Time Series Analysis · Computer Science · Economic theories and models · Game Theory and Applications

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