IDEAS home Printed from https://ideas.repec.org/a/aea/aerins/v2y2020i2p225-36.html
   My bibliography  Save this article

Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?

Author

Listed:
  • Cary Deck
  • Maroš Servátka
  • Steven Tucker

Abstract

The bubble-and-burst pattern in asset markets is among the most replicable results in experimental economics. Using controlled laboratory experiments, we compare mispricing in markets organized by standard double auction rules with mispricing in markets organized by two alternative sets of clock auctions. The double Dutch auction, shown to be more efficient than the double auction in past commodity market experiments, does not eliminate bubbles. However, the English Dutch auction yields prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in a declining fundamental value environment with an increasing cash-to-asset ratio.

Suggested Citation

  • Cary Deck & Maroš Servátka & Steven Tucker, 2020. "Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?," American Economic Review: Insights, American Economic Association, vol. 2(2), pages 225-236, June.
    • Handle: RePEc:aea:aerins:v:2:y:2020:i:2:p:225-36
    DOI: 10.1257/aeri.20190244
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/aeri.20190244
    Download Restriction: no
    File URL: https://doi.org/10.3886/E112069V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/aeri.20190244.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/aeri.20190244.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/aeri.20190244?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lei, Vivian & Noussair, Charles N & Plott, Charles R, 2001. "Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality," Econometrica, Econometric Society, vol. 69(4), pages 831-859, July.
    2. Ben Greiner, 2015. "Subject pool recruitment procedures: organizing experiments with ORSEE," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(1), pages 114-125, July.
    3. Martin Dufwenberg & Tobias Lindqvist & Evan Moore, 2005. "Bubbles and Experience: An Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1731-1737, December.
    4. Thomas Stöckl & Jürgen Huber & Michael Kirchler, 2010. "Bubble measures in experimental asset markets," Experimental Economics, Springer;Economic Science Association, vol. 13(3), pages 284-298, September.
    5. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    6. Plott, Charles R. & Gray, Peter, 1990. "The multiple unit double auction," Journal of Economic Behavior & Organization, Elsevier, vol. 13(2), pages 245-258, March.
    7. Noussair, C.N. & Tucker, S., 2013. "Experimental Research On Asset Pricing," Other publications TiSEM d5f4235c-17a8-407b-800b-2, Tilburg University, School of Economics and Management.
    8. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70(2), pages 111-111.
    9. Cary Deck & David Porter & Vernon Smith, 2014. "Double Bubbles in Assets Markets With Multiple Generations," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 15(2), pages 79-88, April.
    10. Charles Noussair & Steven Tucker, 2006. "Futures Markets And Bubble Formation In Experimental Asset Markets," Pacific Economic Review, Wiley Blackwell, vol. 11(2), pages 167-184, June.
    11. Cheung, Stephen L. & Hedegaard, Morten & Palan, Stefan, 2014. "To see is to believe: Common expectations in experimental asset markets," European Economic Review, Elsevier, vol. 66(C), pages 84-96.
    12. Porter, David P & Smith, Vernon L, 1995. "Futures Contracting and Dividend Uncertainty in Experimental Asset Markets," The Journal of Business, University of Chicago Press, vol. 68(4), pages 509-541, October.
    13. Noussair, Charles N. & Tucker, Steven & Xu, Yilong, 2016. "Futures markets, cognitive ability, and mispricing in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 166-179.
    14. McCabe, Kevin A & Rassenti, Stephen J & Smith, Vernon L, 1992. "Designing Call Auction Institutions: Is Double Dutch the Best?," Economic Journal, Royal Economic Society, vol. 102(410), pages 9-23, January.
    15. Michael Kirchler & Jurgen Huber & Thomas Stockl, 2012. "Thar She Bursts: Reducing Confusion Reduces Bubbles," American Economic Review, American Economic Association, vol. 102(2), pages 865-883, April.
    16. Ernan Haruvy & Charles N. Noussair, 2006. "The Effect of Short Selling on Bubbles and Crashes in Experimental Spot Asset Markets," Journal of Finance, American Finance Association, vol. 61(3), pages 1119-1157, June.
    17. Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, July.
    18. Van Boening, Mark V. & Williams, Arlington W. & LaMaster, Shawn, 1993. "Price bubbles and crashes in experimental call markets," Economics Letters, Elsevier, vol. 41(2), pages 179-185.
    19. Reshmaan N. Hussam & David Porter & Vernon L. Smith, 2008. "Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?," American Economic Review, American Economic Association, vol. 98(3), pages 924-937, June.
    20. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-1151, September.
    21. Stefan Palan, 2013. "A Review Of Bubbles And Crashes In Experimental Asset Markets," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 570-588, July.
    22. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    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. Coppock, Lee A. & Harper, Daniel Q. & Holt, Charles A., 2021. "Capital constraints and asset bubbles: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 75-88.
    2. Lu, Dong & Zhan, Yaosong, 2022. "Over-the-counter versus double auction in asset markets with near-zero-intelligence traders," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    3. Bulent Guler & Volodymyr Lugovskyy & Daniela Puzzello & Steven Tucker, 2021. "Trading Institutions in Experimental Asset Markets: Theory and Evidence," Working Papers in Economics 21/15, University of Waikato.
    4. Choo, Lawrence & Zhou, Xiaoyu, 2022. "Can market selection reduce anomalous behaviour in games?," European Economic Review, Elsevier, vol. 141(C).
    5. Isa E. Hafalir & Serkan Imisiker, 2022. "Call Auctions with Contingent Orders," Games, MDPI, vol. 13(5), pages 1-8, September.
    6. Steven Tucker & Yilong Xu, 2024. "Motivations to speculate are the driving forces in experimental asset market bubbles," Working Papers in Economics 24/02, University of Waikato.
    7. Steven Tucker & Yilong Xu, 2020. "Nonspeculative Bubbles Revisited: Speculation Does Matter," Working Papers in Economics 20/09, University of Waikato.

    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. Huan Xie & Jipeng Zhang, 2016. "Bubbles and experience: An experiment with a steady inflow of new traders," Southern Economic Journal, John Wiley & Sons, vol. 82(4), pages 1349-1373, April.
    2. Noussair, Charles N. & Tucker, Steven & Xu, Yilong, 2016. "Futures markets, cognitive ability, and mispricing in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 166-179.
    3. Shestakova, Natalia & Powell, Owen & Gladyrev, Dmitry, 2019. "Bubbles, experience and success," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 206-213.
    4. Timothy N. Cason & Anya Samek, 2015. "Learning through passive participation in asset market bubbles," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(2), pages 170-181, December.
    5. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2017. "It is Not Just Confusion! Strategic Uncertainty in An Experimental Asset Market," Economic Journal, Royal Economic Society, vol. 127(605), pages 563-580, October.
    6. Steven Tucker & Yilong Xu, 2020. "Nonspeculative Bubbles Revisited: Speculation Does Matter," Working Papers in Economics 20/09, University of Waikato.
    7. Corgnet, Brice & Hernán-González, Roberto & Kujal, Praveen, 2020. "On booms that never bust: Ambiguity in experimental asset markets with bubbles," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    8. Ciril Bosch-Rosa & Thomas Meissner & Antoni Bosch-Domènech, 2018. "Cognitive bubbles," Experimental Economics, Springer;Economic Science Association, vol. 21(1), pages 132-153, March.
    9. Akiyama, Eizo & Hanaki, Nobuyuki & Ishikawa, Ryuichiro, 2014. "How do experienced traders respond to inflows of inexperienced traders? An experimental analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 1-18.
    10. Cheung, Stephen L. & Hedegaard, Morten & Palan, Stefan, 2014. "To see is to believe: Common expectations in experimental asset markets," European Economic Review, Elsevier, vol. 66(C), pages 84-96.
    11. Bulent Guler & Volodymyr Lugovskyy & Daniela Puzzello & Steven Tucker, 2021. "Trading Institutions in Experimental Asset Markets: Theory and Evidence," Working Papers in Economics 21/15, University of Waikato.
    12. Amos Nadler & Peiran Jiao & Cameron J. Johnson & Veronika Alexander & Paul J. Zak, 2019. "The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading," Management Science, INFORMS, vol. 64(9), pages 4032-4051, September.
    13. Martin G Kocher & Konstantin E Lucks & David Schindler, 2019. "Unleashing Animal Spirits: Self-Control and Overpricing in Experimental Asset Markets," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2149-2178.
    14. Steven Tucker & Yilong Xu, 2024. "Motivations to speculate are the driving forces in experimental asset market bubbles," Working Papers in Economics 24/02, University of Waikato.
    15. Anthony Newell & Lionel Page, 2017. "Countercyclical risk aversion and self-reinforcing feedback loops in experimental asset markets," QuBE Working Papers 050, QUT Business School.
    16. Giovanni Giusti & Janet Hua Jiang & Yiping Xu, 2014. "Interest on Cash, Fundamental Value Process and Bubble Formation on Experimental Asset Markets," Staff Working Papers 14-18, Bank of Canada.
    17. Enrica Carbone & John Hey & Tibor Neugebauer, 2021. "An Experimental Comparison of Two Exchange Economies: Long-Lived Asset vs. Short-Lived Asset," Management Science, INFORMS, vol. 67(11), pages 6946-6962, November.
    18. Kopanyi-Peuker, Anita & Weber, Matthias, 2018. "Experience Does not Eliminate Bubbles: Experimental Evidence," SocArXiv ecj7q_v1, Center for Open Science.
    19. Nobuyuki Hanaki & Angela Sutan & Marc Willinger, 2016. "The Strategic Environment Effect in Beauty Contest Games," GREDEG Working Papers 2016-05, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    20. Anita Kopányi-Peuker & Matthias Weber & Lauren Cohen, 2021. "Experience Does Not Eliminate Bubbles: Experimental Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4450-4485.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    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:aerins:v:2:y:2020:i:2:p:225-36. 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.