Equilibrium Discovery and Preopening Mechanisms in an Experimental Market
We experimentally analyze equilibrium discovery in i) a pure call auction, ii) a call auction preceded by a nonbinding preopening period, and iii) a call auction preceded by a binding preopening period. We examine whether a preopening period can facilitate coordination on the Pareto dominant equilibrium. During the nonbinding preopening period, traders tend to place manipulative orders. After observing such orders, participants learn to distrust cheap talk and coordinate less on Pareto dominant outcomes. In contrast, we find that, when preopening orders are binding, they improve the ability to coordinate on high gains from trade.
|Date of creation:||Jan 2009|
|Publication status:||Published in Management Science, vol. 60, n°3, mars 2014.|
|Contact details of provider:|| Phone: (+33) 5 61 12 86 23|
Web page: http://www.tse-fr.eu/
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.:
- Kenneth Clark & Stephen Kay & Martin Sefton, 2001.
"When are Nash equilibria self-enforcing? An experimental analysis,"
International Journal of Game Theory,
Springer;Game Theory Society, vol. 29(4), pages 495-515.
- Clark, K. & Kay, S. & Sefton, M, 1997. "When Are Nash Equilibria Self Enforcing ? An Experimental Analysis," Working Papers 97-04, University of Iowa, Department of Economics.
- Kenneth Clark & Stephen Kay & Martin Sefton, 1997. "When Are Nash Equilibria Self-Enforcing? An Experimental Analysis," Experimental 9707001, EconWPA.
- Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, vol. 80(1), pages 234-248, March.
- John B Van Huyck & Raymond C Battalio & Richard O Beil, 1997. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 1225, David K. Levine.
- J. B. Van Huyck & R. C. Battalio & R. O. Beil, 2010. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 661465000000000393, David K. Levine.
- Charness, Gary, 2000. "Self-Serving Cheap Talk: A Test Of Aumann's Conjecture," Games and Economic Behavior, Elsevier, vol. 33(2), pages 177-194, November.
- Forsythe, Robert & Lundholm, Russell & Rietz, Thomas, 1999. "Cheap Talk, Fraud, and Adverse Selection in Financial Markets: Some Experimental Evidence," Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 481-518.
- Schmidt, David & Shupp, Robert & Walker, James M. & Ostrom, Elinor, 2003. "Playing safe in coordination games:: the roles of risk dominance, payoff dominance, and history of play," Games and Economic Behavior, Elsevier, vol. 42(2), pages 281-299, February.
- Crawford, Vincent P, 1995. "Adaptive Dynamics in Coordination Games," Econometrica, Econometric Society, vol. 63(1), pages 103-143, January.
- V. Crawford, 2010. "Adaptive Dynamics in Coordination Games," Levine's Working Paper Archive 404, David K. Levine.
- Crawford, Vincent, 1998. "A Survey of Experiments on Communication via Cheap Talk," Journal of Economic Theory, Elsevier, vol. 78(2), pages 286-298, February.
- Crawford, Vincent P & Haller, Hans, 1990. "Learning How to Cooperate: Optimal Play in Repeated Coordination Games," Econometrica, Econometric Society, vol. 58(3), pages 571-595, May.
- Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
- 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.
- Marco Pagano, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 255-274.
- Pagano, Marco, 1986. "Trading Volume and Asset Liquidity," CEPR Discussion Papers 142, C.E.P.R. Discussion Papers.
- Blume, Andreas & Ortmann, Andreas, 2007. "The effects of costless pre-play communication: Experimental evidence from games with Pareto-ranked equilibria," Journal of Economic Theory, Elsevier, vol. 132(1), pages 274-290, January.
- Davies, Ryan J., 2003. "The Toronto Stock Exchange preopening session," Journal of Financial Markets, Elsevier, vol. 6(4), pages 491-516, August.
- Bruno Biais & Pierre Hillion & Chester Spatt, 1999. "Price Discovery and Learning during the Preopening Period in the Paris Bourse," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1218-1248, December.
- Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring. Full references (including those not matched with items on IDEAS)