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Three Minimal Market Institutions with Human and Algorithmic Agents: Theory and Experimental Evidence

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Abstract

We define and examine three minimal market games (sell-all, buy-sell, and double auction) in the laboratory relative to the predictions of theory. These closed exchange economies have some cash to facilitate transactions, and include feedback. The experiment reveals that (1) the competitive general equilibrium (CGE) and non-cooperative (NCE) models are reasonable anchors to locate most but not all the observed outcomes of the three market mechanisms; (2) outcomes tend to get closer to CGE predictions as the number of players increases; (3) prices and allocations in double auctions deviate persistently from CGE predictions; (4) the outcome paths across the three market mechanisms differ significantly and persistently; (5) importance of market structures for outcomes is reinforced by algorithmic trader simulations; and (6) none of the three markets dominates the others across six measures of performance. Inclusion of some mechanism differences into theory may enhance our understanding of important aspects of markets.

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File URL: http://cowles.econ.yale.edu/P/cd/d16a/d1623-r.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1623R.

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Length: 52 pages
Date of creation: Aug 2007
Date of revision: Jan 2010
Publication status: Published in Games and Economic Behavior (2010), 70: 403-424
Handle: RePEc:cwl:cwldpp:1623r

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Related research

Keywords: Strategic market games; Laboratory experiments; Minimally intelligent agents; Adaptive learning agents; General equilibrium;

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Cited by:
  1. Juergen Huber & Martin Shubik & Shyam Sunder, 2008. "The Value of Fiat Money with an Outside Bank: An Experimental Game," Cowles Foundation Discussion Papers 1675, Cowles Foundation for Research in Economics, Yale University, revised Apr 2010.
  2. Dmitry Levando, 2012. "A Survey Of Strategic Market Games," Economic Annals, Faculty of Economics, University of Belgrade, vol. 57(194), pages 63-106, July - Se.
  3. Juergen Huber & Martin Shubik & Shyam Sunder, 2014. "Sufficiency of an Outside Bank and a Default Penalty to Support the Value of Fiat Money: Experimental Evidence," Cowles Foundation Discussion Papers 1675RR, Cowles Foundation for Research in Economics, Yale University.

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