IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v101y2011i7p3196-3220.html
   My bibliography  Save this article

Extreme Walrasian Dynamics: The Gale Example in the Lab

Author

Listed:
  • Sean Crockett
  • Ryan Oprea
  • Charles Plott

Abstract

We study David Gale's (1963) economy using laboratory markets. Tatonnement theory predicts prices will diverge from an equitable interior equilibrium toward infinity or zero depending only on initial prices. The inequitable equilibria determined by these dynamics give all gains from exchange to one side of the market. We show surprisingly strong support for these predictions. In most sessions one side of the market eventually outgains the other by more than 20 times, leaving the disadvantaged side to trade for mere pennies. We also find preliminary evidence that these dynamics are sticky, resisting exogenous interventions designed to reverse their trajectories. (JEL C92, D50)

Suggested Citation

  • Sean Crockett & Ryan Oprea & Charles Plott, 2011. "Extreme Walrasian Dynamics: The Gale Example in the Lab," American Economic Review, American Economic Association, vol. 101(7), pages 3196-3220, December.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:7:p:3196-3220
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.7.3196
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: http://www.aeaweb.org/aer/data/dec2011/20100387_data.zip
    File Function: dataset accompanying article
    Download Restriction: no
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Anderson, Christopher M. & Plott, Charles R. & Shimomura, K.-I.Ken-Ichi & Granat, Sander, 2004. "Global instability in experimental general equilibrium: the Scarf example," Journal of Economic Theory, Elsevier, vol. 115(2), pages 209-249, April.
    2. Steven Gjerstad, 2013. "Price dynamics in an exchange economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 461-500, March.
    3. Bergstrom Theodore C & Shimomura Ken-Ichi & Yamato Takehiko, 2009. "Simple Economies with Multiple Equilibria," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-31, December.
    4. Hurwicz, Leonid & Radner, Roy & Reiter, Stanley, 1975. "A Stochastic Decentralized Resource Allocation Process: Part I," Econometrica, Econometric Society, vol. 43(2), pages 187-221, March.
    5. Kirman, Alan, 1989. "The Intrinsic Limits of Modern Economic Theory: The Emperor Has No Clothes," Economic Journal, Royal Economic Society, vol. 99(395), pages 126-139, Supplemen.
    6. Plott, Charles R, 2000. "Market Stability: Backward-Bending Supply in a Laboratory Experimental Market: 1999 Presidential Address Western Economic Association," Economic Inquiry, Western Economic Association International, vol. 38(1), pages 1-18, January.
    7. Charles R. Plott & Jared Smith, 1999. "Instability of Equilibria in Experimental Markets: Upward-Sloping Demands, Externalities, and Fad-Like Incentives," Southern Economic Journal, John Wiley & Sons, vol. 65(3), pages 405-426, January.
    8. Omar Al-Ubaydli & John A. List & Michael K. Price, 2010. "The Nature of Excess: Using Randomized Treatments to Investigate Price Dynamics," NBER Working Papers 16319, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Granlund, David & Bergman, Mats A., 2018. "Price competition in pharmaceuticals – Evidence from 1303 Swedish markets," Journal of Health Economics, Elsevier, vol. 61(C), pages 1-12.
    2. Yuval Rabani & Leonard J. Schulman, 2016. "The Invisible Hand of Laplace: the Role of Market Structure in Price Convergence and Oscillation," Papers 1602.07628, arXiv.org.
    3. Lucas Herrenbrueck, 2018. "Instability of endogenous price dispersion equilibria: A simulation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(4), pages 1363-1385, November.
    4. Carlos Alós-Ferrer & Johannes Buckenmaier & Georg Kirchsteiger, 2020. "Do Traders Learn to Select Efficient Market Institutions?," ECON - Working Papers 364, Department of Economics - University of Zurich.
    5. Sean Crockett, 2013. "Price Dynamics In General Equilibrium Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 421-438, July.
    6. Sean Crockett & Daniel Friedman & Ryan Oprea, 2021. "Naturally Occurring Preferences And General Equilibrium: A Laboratory Study," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 831-859, May.
    7. Goeree, Jacob K. & Lindsay, Luke, 2016. "Market design and the stability of general equilibrium," Journal of Economic Theory, Elsevier, vol. 165(C), pages 37-68.
    8. Rud, Olga A. & Rabanal, Jean Paul & Sharifova, Manizha, 2019. "An experiment on the efficiency of bilateral exchange under incomplete markets," Games and Economic Behavior, Elsevier, vol. 114(C), pages 253-267.
    9. John D. Hey & Daniela Di Cagno, 2018. "Does money impede convergence?," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 18, pages 391-408, World Scientific Publishing Co. Pte. Ltd..
    10. Carlos Alós-Ferrer & Johannes Buckenmaier & Georg Kirchsteiger, 2022. "Do traders learn to select efficient market institutions?," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 203-228, February.
    11. Plott, Charles & Roy, Nilanjan & Tong, Baojia, 2013. "Marshall and Walras, disequilibrium trades and the dynamics of equilibration in the continuous double auction market," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 190-205.
    12. Crockett, Sean & Friedman, Daniel & Oprea, Ryan, 2017. "Aggregation and convergence in experimental general equilibrium economies constructed from naturally occurring preferences," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2017-501, WZB Berlin Social Science Center.
    13. Hatfield, John William & Plott, Charles R. & Tanaka, Tomomi, 2016. "Price controls, non-price quality competition, and the nonexistence of competitive equilibrium," Games and Economic Behavior, Elsevier, vol. 99(C), pages 134-163.
    14. E. Randon & P. Simmons, 2012. "A Top Dog Tale with Preference Rigidities," Working Papers wp839, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Rabani, Yuval & Schulman, Leonard J., 2021. "The invisible hand of Laplace: The role of market structure in price convergence and oscillation," Journal of Mathematical Economics, Elsevier, vol. 95(C).
    16. Jean-Paul Chavas & Eleonora Matteazzi & Martina Menon & Federico Perali, 2022. "(In)Efficient Bargaining in the Family," Working Papers 2, SITES.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sean Crockett, 2013. "Price Dynamics In General Equilibrium Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 421-438, July.
    2. Crockett, Sean & Spear, Stephen & Sunder, Shyam, 2008. "Learning competitive equilibrium," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 651-671, July.
    3. Noussair, Charles & Plott, Charles & Riezman, Raymond, 2007. "Production, trade, prices, exchange rates and equilibration in large experimental economies," European Economic Review, Elsevier, vol. 51(1), pages 49-76, January.
    4. Rabani, Yuval & Schulman, Leonard J., 2021. "The invisible hand of Laplace: The role of market structure in price convergence and oscillation," Journal of Mathematical Economics, Elsevier, vol. 95(C).
    5. Plott, Charles & Roy, Nilanjan & Tong, Baojia, 2013. "Marshall and Walras, disequilibrium trades and the dynamics of equilibration in the continuous double auction market," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 190-205.
    6. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.
    7. Yuval Rabani & Leonard J. Schulman, 2016. "The Invisible Hand of Laplace: the Role of Market Structure in Price Convergence and Oscillation," Papers 1602.07628, arXiv.org.
    8. Tongkui Yu & Shu-Heng Chen, 2021. "Realizable Utility Maximization as a Mechanism for the Stability of Competitive General Equilibrium in a Scarf Economy," Computational Economics, Springer;Society for Computational Economics, vol. 58(1), pages 133-167, June.
    9. Sean Crockett & Daniel Friedman & Ryan Oprea, 2021. "Naturally Occurring Preferences And General Equilibrium: A Laboratory Study," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 831-859, May.
    10. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, January.
    11. Benjamin J. Gillen & Masayoshi Hirota & Ming Hsu & Charles R. Plott & Brian W. Rogers, 2021. "Divergence and convergence in Scarf cycle environments: experiments and predictability in the dynamics of general equilibrium systems," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(3), pages 1033-1084, April.
    12. Noussair, C.N. & Plott, C. & Riezman, R., 2007. "Production, trade and exchange rates in large experimental economies," Other publications TiSEM 3bf683fe-0650-4e8a-8682-c, Tilburg University, School of Economics and Management.
    13. Crockett, Sean & Friedman, Daniel & Oprea, Ryan, 2017. "Aggregation and convergence in experimental general equilibrium economies constructed from naturally occurring preferences," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2017-501, WZB Berlin Social Science Center.
    14. Paul Brewer & Maria Huang & Brad Nelson & Charles Plott, 2002. "On the Behavioral Foundations of the Law of Supply and Demand: Human Convergence and Robot Randomness," Experimental Economics, Springer;Economic Science Association, vol. 5(3), pages 179-208, December.
    15. Benaïm, Michel & Hofbauer, Josef & Hopkins, Ed, 2009. "Learning in games with unstable equilibria," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1694-1709, July.
    16. Omar Al-Ubaydli & John A. List, 2019. "How natural field experiments have enhanced our understanding of unemployment," Nature Human Behaviour, Nature, vol. 3(1), pages 33-39, January.
    17. Jacek STROJNY & Jakub PIECUCH, 2017. "The land use structure of agricultural holdings in the Central and East European Countries and its evolution," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 63(1), pages 13-23.
    18. Jun Honda, 2015. "Games with the Total Bandwagon Property," Department of Economics Working Papers wuwp197, Vienna University of Economics and Business, Department of Economics.
    19. Hurwicz, Leonid & Reiter, Stanley, 1973. "On the Boundedness of the Feasible Set Without Convexity Assumptions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 580-586, October.
    20. Daniele Cassese & Paolo Pin, 2018. "Decentralized Pure Exchange Processes on Networks," Papers 1803.08836, arXiv.org, revised Mar 2022.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Extreme Walrasian Dynamics: The Gale Example in the Lab (AER 2011) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:101:y:2011:i:7:p:3196-3220. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.