Figure 2: The two prior distributions used for the simulation. For example, the market maker with the exponential prior believes that state 5 will be realized with 63.6% probability. 27 Table 6: The Set of Parameters Used for Simulation B Figure 2 shows the two prior distributions used in this simulation exercise. The market maker with the uniform prior has no information on what will happen in the future. With no valuable piece of evidence available to make an inference, the market maker simply assumes that each state is equally probable. In contrast, the market maker with the exponential prior is more assertive in deciding which state is more probable than the others. For example, he/she thinks that state 5 is at least sixty times more probable than state 1. Figure 3 shows the outcome of the market-clearing algorithm for two prior distributions. We