CFDP Revision Date
We deﬁne and examine the performance of three minimal strategic market games (sell-all, buy-sell, and double auction) in laboratory relative to the predictions of theory. Unlike open or partial equilibrium settings of most other experiments, these closed exchange economies have limited amounts of cash to facilitate transactions and include feedback. General equilibrium theory, since it abstracts away from market mechanisms and has no role for money or credit, makes no predictions about how the paths of convergence to the competitive equilibrium may diﬀer across alternative mechanisms. Introduction of markets and money as carriers of process creates the possibility of motion. The laboratory data reveal diﬀerent paths, and diﬀerent levels of allocative eﬀiciency in the three settings. The results suggest that abstracting away from all institutional details does not help understand dynamic aspects of market behavior. For example, the oligopoly eﬀect of feedback from buying an endowed good is missed. Inclusion of mechanism diﬀerences into theory may enhance our understanding of important aspects of markets and money and help link conventional equilibrium analysis with dynamics.
Huber, Juergen; Shubik, Martin; and Sunder, Shyam, "Three Minimal Market Institutions with Human and Algorithmic Agents: Theory and Experimental Evidence" (2007). Cowles Foundation Discussion Papers. 1920.