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Extreme Walrasian Dynamics: The Gale Example in the Lab

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  • 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
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    References listed on IDEAS

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    5. 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.
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    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.

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    More about this item

    JEL classification:

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

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