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Emergence of Money as a Medium of Exchange: An Experimental Study

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  • Jack Ochs
  • John Duffy

Abstract

This paper reports findings from an experiment that implements a search-theoretic model of money as a medium of exchange. The question examined is whether subjects learn to adopt the same commodities as media of exchange that the model predicts will be used in equilibrium. We report that subjects have a strong tendency to play "fundamental" rather than "speculative" strategies even in environments where speculative strategies yield higher payoffs. We examine some possible motivations for subjects' behavior and conclude that subjects are mainly motivated by past payoff experience as opposed to the marketability considerations that the theory emphasizes.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.89.4.847
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 89 (1999)
Issue (Month): 4 (September)
Pages: 847-877

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Handle: RePEc:aea:aecrev:v:89:y:1999:i:4:p:847-877

Note: DOI: 10.1257/aer.89.4.847
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  1. S. Rao Aiyagari & Neil Wallace, 1991. "Existence of steady states with positive consumption in the Kiyotaki-Wright model," Working Papers 428, Federal Reserve Bank of Minneapolis.
  2. Kehoe, Timothy J & Kiyotaki, Nobuhiro & Wright, Randall, 1993. "More on Money as a Medium of Exchange," Economic Theory, Springer, vol. 3(2), pages 297-314, April.
  3. Sethi, Rajiv, 1999. "Evolutionary stability and media of exchange," Journal of Economic Behavior & Organization, Elsevier, vol. 40(3), pages 233-254, November.
  4. Wright, Randall, 1995. "Search, evolution, and money," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 181-206.
  5. Marimon, Ramon & McGrattan, Ellen & Sargent, Thomas J., 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, Elsevier, vol. 14(2), pages 329-373, May.
  6. Brown, Paul M., 1996. "Experimental evidence on money as a medium of exchange," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 583-600, April.
  7. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
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