IDEAS home Printed from https://ideas.repec.org/p/feb/framed/00195.html
   My bibliography  Save this paper

Markets as economizers of information: Field experimental examination of the 'hayek hypothesis'

Author

Listed:
  • Omar Al-Ubaydli
  • Peter Boettke

Abstract

The work of Friedrich Von Hayek contains several testable predictions about the nature of market processes. Vernon Smith termed the most important one the "Hayek hypothesis:" equilibrium prices and the gains from trade can be achieved in the presence of diffuse, decentralized information, and in the absence of price-taking behavior and centralized market direction. Vernon Smith tested this by surveying data on laboratory experimental markets and found strong support. We repeat this exercise using field experimental market data. Using field experiments allows us to test several other predictions. Generally speaking, we find support for Hayek's theories.

Suggested Citation

  • Omar Al-Ubaydli & Peter Boettke, 2012. "Markets as economizers of information: Field experimental examination of the 'hayek hypothesis'," Framed Field Experiments 00195, The Field Experiments Website.
    • Handle: RePEc:feb:framed:00195
    as

    Download full text from publisher

    File URL: http://s3.amazonaws.com/fieldexperiments-papers2/papers/00195.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Smith,Vernon L., 2009. "Rationality in Economics," Cambridge Books, Cambridge University Press, number 9780521133388, October.
    2. Uri Gneezy & Jan Potters, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 631-645.
    3. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer;Economic Science Association, vol. 9(2), pages 79-101, June.
    4. F. A. Hayek, 2005. "The Use of Knowledge in Society," World Scientific Book Chapters, in: Guang-Zhen Sun (ed.), Readings In The Economics Of The Division Of Labor The Classical Tradition, chapter 25, pages 270-284, World Scientific Publishing Co. Pte. Ltd..
    5. Armin Falk & James J. Heckman, 2009. "Lab Experiments are a Major Source of Knowledge in the Social Sciences," Working Papers 200935, Geary Institute, University College Dublin.
    6. John A. List & Michael K. Price, 2005. "Conspiraces and Secret Price Discounts in the Marketplace: Evidence from Field Experiments," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 700-717, Autumn.
    7. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    8. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October.
    9. Jonathan E. Alevy & Michael S. Haigh & John A. List, 2007. "Information Cascades: Evidence from a Field Experiment with Financial Market Professionals," Journal of Finance, American Finance Association, vol. 62(1), pages 151-180, February.
    10. repec:feb:framed:0071 is not listed on IDEAS
    11. John A. List, 2006. "The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 1-37, February.
    12. John A. List & Michael S. Haigh, 2010. "Investment Under Uncertainty: Testing the Options Model with Professional Traders," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 974-984, November.
    13. Michael S. Haigh & John A. List, 2005. "Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis," Journal of Finance, American Finance Association, vol. 60(1), pages 523-534, February.
    14. Robert Feinberg & Christopher Snyder, 2002. "Collusion with secret price cuts: an experimental investigation," Economics Bulletin, AccessEcon, vol. 3(6), pages 1-11.
    15. John A. List, 2004. "Testing Neoclassical Competitive Theory in Multilateral Decentralized Markets," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 1131-1156, October.
    16. Davis, Douglas D & Williams, Arlington W, 1991. "The Hayek Hypothesis in Experimental Auctions: Institutional Effects and Market Power," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 261-274, April.
    17. Hayek, F. A., 1996. "Individualism and Economic Order," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226320939, October.
    18. 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.
    19. Glenn W. Harrison & John A. List, 2008. "Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse," Economic Journal, Royal Economic Society, vol. 118(528), pages 822-843, April.
    20. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    21. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    22. Edmund S. Phelps, 2008. "Macroeconomics for a Modern Economy," The American Economist, Sage Publications, vol. 52(1), pages 3-22, March.
    23. Vernon L. Smith, 1965. "Experimental Auction Markets and the Walrasian Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 73(4), pages 387-387.
    24. Charles R. Plott & Kathryn Zeiler, 2005. "The Willingness to Pay–Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations," American Economic Review, American Economic Association, vol. 95(3), pages 530-545, June.
    25. Frydman, Roman, 1982. "Towards an Understanding of Market Processes: Individual Expectations, Learning, and Convergence to Rational Expectations Equilibrium," American Economic Review, American Economic Association, vol. 72(4), pages 652-668, September.
    26. Wolinsky, Asher, 1990. "Information Revelation in a Market with Pairwise Meetings," Econometrica, Econometric Society, vol. 58(1), pages 1-23, January.
    27. Ginger Zhe Jin & Andrew Kato, 2006. "Price, quality, and reputation: evidence from an online field experiment," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 983-1005, December.
    28. Asher Wolinsky, 1988. "Dynamic Markets with Competitive Bidding," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(1), pages 71-84.
    29. Ginger Zhe Jin & Andrew Kato, 2006. "Price, quality, and reputation: evidence from an online field experiment," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 983-1005, December.
    30. Smith, Vernon L, 1982. "Markets as Economizers of Information: Experimental Examination of the "Hayek Hypothesis"," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 165-179, April.
    31. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-1150, September.
    32. Davis, Douglas D & Holt, Charles A, 1998. "Conspiracies and Secret Discounts in Laboratory Markets," Economic Journal, Royal Economic Society, vol. 108(448), pages 736-756, May.
    33. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
    34. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    35. repec:ebl:ecbull:v:3:y:2002:i:6:p:1-11 is not listed on IDEAS
    36. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, March.
    37. 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.
    38. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-279, May.
    39. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
    40. 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.
    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. Omar Al-Ubaydli & John A. List, 2016. "Field Experiments in Markets," NBER Working Papers 22113, National Bureau of Economic Research, Inc.

    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. Brian Albrecht & Omar Al-Ubaydli & Peter Boettke, 2022. "Testing the Hayek hypothesis: Recent theoretical and experimental evidence," Artefactual Field Experiments 00759, The Field Experiments Website.
    2. Omar Al-Ubaydli & John List, 2016. "Field Experiments in Markets," Artefactual Field Experiments j0002, The Field Experiments Website.
    3. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    4. Christoph Huber & Christian König-Kersting & Matteo M. Marini, 2022. "Experimenting with Financial Professionals," Working Papers 2022-07, Faculty of Economics and Statistics, Universität Innsbruck, revised Jun 2024.
    5. Jonathan E. Alevy & Craig E. Landry & John A. List, 2015. "Field Experiments On The Anchoring Of Economic Valuations," Economic Inquiry, Western Economic Association International, vol. 53(3), pages 1522-1538, July.
    6. John A. List, 2009. "The Economics of Open Air Markets," NBER Working Papers 15420, National Bureau of Economic Research, Inc.
    7. Omar Al-Ubaydli & John A. List, 2019. "How natural field experiments have enhanced our understanding of unemployment," Nature Human Behaviour, Nature, vol. 3(1), pages 33-39, January.
    8. List John A., 2007. "Field Experiments: A Bridge between Lab and Naturally Occurring Data," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 6(2), pages 1-47, April.
    9. Bolton, Gary E. & Ockenfels, Axel, 2014. "Does laboratory trading mirror behavior in real world markets? Fair bargaining and competitive bidding on eBay," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 143-154.
    10. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    11. Omar Al-Ubaydli & John List, 2013. "On the Generalizability of Experimental Results in Economics: With A Response To Camerer," Artefactual Field Experiments j0001, The Field Experiments Website.
    12. Matteo M. Galizzi & Daniel Navarro-Martinez, 2019. "On the External Validity of Social Preference Games: A Systematic Lab-Field Study," Management Science, INFORMS, vol. 65(3), pages 976-1002, March.
    13. Hallsworth, Michael & List, John A. & Metcalfe, Robert D. & Vlaev, Ivo, 2017. "The behavioralist as tax collector: Using natural field experiments to enhance tax compliance," Journal of Public Economics, Elsevier, vol. 148(C), pages 14-31.
    14. Omar Al-Ubaydli & John A. List, 2013. "On the Generalizability of Experimental Results in Economics: With a Response to Commentors," CESifo Working Paper Series 4543, CESifo.
    15. Levitt, Steven D. & List, John A., 2009. "Field experiments in economics: The past, the present, and the future," European Economic Review, Elsevier, vol. 53(1), pages 1-18, January.
    16. Weimann Joachim, 2015. "Die Rolle von Verhaltensökonomik und experimenteller Forschung in Wirtschaftswissenschaft und Politikberatung," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 16(3), pages 231-252, October.
    17. Omar Al-Ubaydli & John List, 2012. "On the Generalizability of Experimental Results in Economics," Artefactual Field Experiments 00467, The Field Experiments Website.
    18. Trond Døskeland & Lars Jacob Tynes Pedersen, 2016. "Investing with Brain or Heart? A Field Experiment on Responsible Investment," Management Science, INFORMS, vol. 62(6), pages 1632-1644, June.
    19. Marco Angrisani & Marco Cipriani & Antonio Guarino, 2022. "Strategic Sophistication and Trading Profits: An Experiment with Professional Traders," Staff Reports 1044, Federal Reserve Bank of New York.
    20. Kimbrough, Erik O. & Smyth, Andrew, 2018. "Testing the boundaries of the double auction: The effects of complete information and market power," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 372-396.

    More about this item

    JEL classification:

    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    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:feb:framed:00195. 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: Francesca Pagnotta (email available below). General contact details of provider: http://www.fieldexperiments.com .

    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.