IDEAS home Printed from https://ideas.repec.org/a/wly/econjl/v127y2017i599p199-228.html

The Hayek Hypothesis and Long‐run Competitive Equilibrium: An Experimental Investigation

Author

Listed:
  • Jason Shachat
  • Zhenxuan Zhang

Abstract

We report on an experiment investigating whether the Hayak Hypothesis (Smith, 1982) extends to the long run setting. We consider two environments; one with a common production technology having a U-shaped long run average cost curve and a single competitive equilibrium, and another with a common constant returns to scale technology having a constant long run average cost curve and multiple competitive equilibria. While there is convergence in both environments to the long run equilibrium, it takes longer and is less robust than usually observed in the short run setting. We show that price formation is adaptive and quickly converges to realized short run equilibrium, but long run investment decisions exhibit very limited rationality. We present and estimate an investment choice model that shows that only minimal rationality, coupled with repeated decisions, is enough to achieve high long run allocative efficiency when markets use continuous double auctions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Jason Shachat & Zhenxuan Zhang, 2017. "The Hayek Hypothesis and Long‐run Competitive Equilibrium: An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 127(599), pages 199-228, February.
    • Handle: RePEc:wly:econjl:v:127:y:2017:i:599:p:199-228
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/ecoj.2017.127.issue-599
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

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


    Cited by:

    1. Jinrui Pan & Jason Shachat & Sijia Wei, 2022. "Cognitive Stress and Learning Economic Order Quantity Inventory Management: An Experimental Investigation," Decision Analysis, INFORMS, vol. 19(3), pages 229-254, September.
    2. Shachat, Jason & Walker, Matthew J. & Wei, Lijia, 2024. "Contingent payments in procurement interactions: Experimental evidence," European Economic Review, Elsevier, vol. 170(C).
    3. Jinrui Pan & Jason Shachat & Sijia Wei, 2020. "Cognitive reflection and economic order quantity inventory management: An experimental investigation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(6), pages 998-1009, September.
    4. Pan, Jinrui & Shachat, Jason & Wei, Sijia, 2018. "Cognitive stress and learning Economic Order Quantity (EOQ) inventory management: An experimental investigation," MPRA Paper 86221, University Library of Munich, Germany.
    5. Konstantinos Georgalos & John Hey, 2020. "Testing for the emergence of spontaneous order," Experimental Economics, Springer;Economic Science Association, vol. 23(3), pages 912-932, September.
    6. Manahov, Viktor & Hudson, Robert & Hoque, Hafiz, 2015. "Return predictability and the ‘wisdom of crowds’: Genetic Programming trading algorithms, the Marginal Trader Hypothesis and the Hayek Hypothesis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 37(C), pages 85-98.
    7. Kai Fischer & W. Benedikt Schmal, 2025. "Pricing in response to new information: The case of betting markets," Economic Inquiry, Western Economic Association International, vol. 63(1), pages 236-264, January.
    8. Christian A. Conrad, 2022. "The Effects of Demand and Interest Rates on Investments, Evidence of Overinvestment from Two Behavioral Experiments," Applied Economics and Finance, Redfame publishing, vol. 9(1), pages 19-28, December.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

    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:wly:econjl:v:127:y:2017:i:599:p:199-228. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/resssea.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.