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No-Trade in the Laboratory

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  • Marco Angrisani

    (University College London)

  • Antonio Guarino

    (University College London)

  • Steffen Huck

    (University College London)

  • Nathan Larson

    (University of Virginia)

Abstract

We test the no-trade theorem in a laboratory nancial market where subjects can trade an asset whose value is unknown. Subjects receive clues on the asset value and then set a bid and an ask at which they are willing to buy or to sell from the other participants. In treatments with no gains from trade, theory predicts no trading activity, whereas, in treatments with gains, trade becomes theoretically possible. Our experimental results show that subjects fail to reach the no-trade equilibrium by pure introspection, but they learn to approach it over time, through market feedback and learning.

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Paper provided by ESRC World Economy and Finance Research Programme, Birkbeck, University of London in its series WEF Working Papers with number 0045.

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Date of creation: Sep 2008
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Handle: RePEc:wef:wpaper:0045

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