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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
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    Cited by:

    1. Choo, Lawrence & Zhou, Xiaoyu, 2022. "Can market selection reduce anomalous behaviour in games?," European Economic Review, Elsevier, vol. 141(C).
    2. 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.
    3. Isa E. Hafalir & Serkan Imisiker, 2022. "Call Auctions with Contingent Orders," Games, MDPI, vol. 13(5), pages 1-8, September.
    4. Carol Luengo & Steven Tucker & Yilong Xu & Kun Zhang, 2025. "The Role of Communication in Asset Market Experiments," Working Papers in Economics 25/04, University of Waikato.
    5. 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.
    6. Steven Tucker & Yilong Xu, 2020. "Nonspeculative Bubbles Revisited: Speculation Does Matter," Working Papers in Economics 20/09, University of Waikato.
    7. 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).
    8. Guler, Bulent & Lugovskyy, Volodymyr & Puzzello, Daniela & Tucker, Steven, 2025. "Trading institutions in experimental asset markets: Theory and Evidence," European Economic Review, Elsevier, vol. 180(C).
    9. Ding, Shuze & Lu, Dong & Puzzello, Daniela, 2025. "The impact of search frictions in experimental asset markets: Over-the-counter versus double auction," Journal of Economic Behavior & Organization, Elsevier, vol. 229(C).

    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

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