How Naiveté improves efficiency in trading with preplay communication

If a positive proportion of traders are naive (i.e., honestly reveal their types and bid/ask truthfully), then efficiency increases in a double auction with preplay communication. Presence of naive traders induces strategic traders to decrease the misrepresentation of their private information.

► We study a double auction with preplay communication when traders can be naive. ► Naive traders honestly reveal their types and bid/ask truthfully. ► Efficiency increases as the proportion of naive traders increases. ► Presence of naive traders reduces strategic misrepresentation.