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On the Behavioral Foundations of the Law of Supply and Demand: Human Convergence and Robot Randomness

  • Paul Brewer

    ()

  • Maria Huang
  • Brad Nelson
  • Charles Plott

    ()

This research builds on the work of D.K. Gode and Shyam Sunder who demonstrated the existence of a strong relationship between market institutions and the ability of markets to seek equilibrium—even when the agents themselves have limited intelligence and behave with substantial randomness. The question posed is whether or not market institutions account for the operation of the law of supply and demand in markets populated by humans with no role required of human rationality. Are institutions responsible for the operations of the law of supply and demand or are behavioral principles also at work? Experiments with humans and simulations with robots both conducted in conditions in which major institutional and structural aids to convergence were removed, produced clear answers. Human markets converge, while robot markets do not. The structural and institutional features certainly facilitate convergence under conditions of substantial irrationality, but they are not necessary for convergence in markets in which agents have the rationality of humans. Copyright Kluwer Academic Publishers 2002

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File URL: http://hdl.handle.net/10.1023/A:1020871917917
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Article provided by Springer in its journal Experimental Economics.

Volume (Year): 5 (2002)
Issue (Month): 3 (December)
Pages: 179-208

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Handle: RePEc:kap:expeco:v:5:y:2002:i:3:p:179-208
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  2. Jamison, Julian C. & Plott, Charles R., 1994. "Costly Offers and the Equilibration Properties of the Multiple Unit Double Auction Under Conditions of Unpredictable Shifts of Demand and Supply," Working Papers 906, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
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  17. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
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