An Experiment on Partnership Protocols for Bilateral Trade with Incomplete Information
We study experimentally “partnership protocols” of the sort proposed by Kalai and Kalai (2010), for bilateral trade games with incomplete information. We utilize the familiar game analyzed by Chatterjee and Samuelson (1983) and Myerson and Sattherwaite (1983), with a buyer and seller with value and cost independently distributed uniformly on (0,100). The usual rules of the game are for the buyer and seller to submit price bids and asks, and for trade to occur if and only if the buyer’s bid price exceeds the seller’s ask price, in which case trade occurs at the average of the bid and the ask price. We compare the efficiency of trade and the nature of bid functions in this standard game to those in other versions of the game, including games in which cheap talk is allowed prior to trade (either before or after the traders know their own information, but without knowing each others’ information), games with the formal mechanisms proposed by Kalai and Kalai available as an option for the traders to use, and games with both the mechanisms and cheap talk available. We consider both ex ante and interim mechanisms. That is, traders simultaneously choose whether to opt in to the mechanism either prior to knowing their own information, or after knowing their own information. In the last two versions of the game, cheap talk takes place prior to the opt-in decision. We find that the formal mechanisms significantly increase the efficiency of trade in both the ex ante and interim cases. Specifically, in the baseline game, traders captured 73% of the available surplus (compared to a theoretical maximum of 84% possible with optimal strategies). Efficiency rises to 87% and 82% for the ex ante and interim mechanisms, respectively, and further rises to 90% and 84% when cheap talk is also allowed with the mechanisms. When only cheap talk is allowed, traders capture 81% (for ex ante talk), but only 70% (for interim talk). On average, 55% of trading pairs opt in to mechanisms when they are available.
|Date of creation:||18 Jan 2013|
|Contact details of provider:|| Postal: New Jersey Hall - 75 Hamilton Street, New Brunswick, NJ 08901-1248|
Phone: (732) 932-7363
Fax: (732) 932-7416
Web page: http://economics.rutgers.edu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schotter, Andrew & Sopher, Barry, 2007.
"Advice and behavior in intergenerational ultimatum games: An experimental approach,"
Games and Economic Behavior,
Elsevier, vol. 58(2), pages 365-393, February.
- Shotter, A. & Sopher, B., 2001. "Advice and Behavior in Intergenerational Ultimatum Games: An Experimental Approach," Working Papers 01-04, C.V. Starr Center for Applied Economics, New York University.
- Hurwicz,Leonid & Reiter,Stanley, 2008. "Designing Economic Mechanisms," Cambridge Books, Cambridge University Press, number 9780521724104, September.
- Hurwicz,Leonid & Reiter,Stanley, 2006. "Designing Economic Mechanisms," Cambridge Books, Cambridge University Press, number 9780521836418, September.
- Ananish Chaudhuri & Andrew Schotter & Barry Sopher, 2009. "Talking Ourselves to Efficiency: Coordination in Inter-Generational Minimum Effort Games with Private, Almost Common and Common Knowledge of Advice," Economic Journal, Royal Economic Society, vol. 119(534), pages 91-122, 01.
- Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
- Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Andrew Schotter & Barry Sopher, 2003. "Social Learning and Coordination Conventions in Intergenerational Games: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 498-529, June.
- Schotter, A. & Sopher, B., 2001. "Social Learning and Coordination Conventions in Inter-Generational Games: An Experimental Study," Working Papers 01-10, C.V. Starr Center for Applied Economics, New York University.
- Williams,Steven R., 2008. "Communication in Mechanism Design," Cambridge Books, Cambridge University Press, number 9780521851312, September.
- 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.
- Farrell, Joseph & Gibbons, Robert, 1989. "Cheap talk can matter in bargaining," Journal of Economic Theory, Elsevier, vol. 48(1), pages 221-237, June.
- Robert Gibbons & Joseph Farrell, 1988. "Cheap Talk Can Matter in Bargaining," Working papers 482, Massachusetts Institute of Technology (MIT), Department of Economics.
- Joseph Farrell and Robert Gibbons., 1988. "Cheap Talk Can Matter in Bargaining," Economics Working Papers 8863, University of California at Berkeley.
- Farrell, Joseph & Gibbons, Robert, 1988. "Cheap Talk Can Matter in Bargaining," Department of Economics, Working Paper Series qt3qz786xq, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Radner, Roy & Schotter, Andrew, 1989. "The sealed-bid mechanism: An experimental study," Journal of Economic Theory, Elsevier, vol. 48(1), pages 179-220, June.
When requesting a correction, please mention this item's handle: RePEc:rut:rutres:201304. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.