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The Edgeworth exchange formulation of bargaining models and market experiments

Author

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  • Steven Gjerstad

    (University of Arizona)

  • Jason Shachat

    (T.J. Watson Research Center, IBM)

Abstract

We construct Edgeworth exchange economies equivalent to demand and supply environments typically used in bargaining models and market experiments. This formulation clearly delineates environment, institution, and behavior for these models and experiments. To illustrate, we examine results by Gode and Sunder, who simulate random behavior in a double auction and argue that this institution leads to an efficient allocation, even in the absence of rationality. We use the Edgeworth exchange representation of their economic environment to demonstrate that they model individually rational behavior, and show that their model is a special case of theoretical results by Hurwicz, Radner, and Reiter.

Suggested Citation

  • Steven Gjerstad & Jason Shachat, 2003. "The Edgeworth exchange formulation of bargaining models and market experiments," Microeconomics 0304004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpmi:0304004
    Note: Type of Document - PDF file (from LaTeX); prepared on MikTex (LaTeX for PC); to print on HP/PostScript; pages: 12 ; figures: included. This paper is a substantial revision of ``A General Equilibrium Structure for Induced Supply and Demand" (UCSD Economics Discussion Paper 96-35).
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/0304/0304004.pdf
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    References listed on IDEAS

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    1. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    2. Hurwicz, Leonid & Radner, Roy & Reiter, Stanley, 1975. "A Stochastic Decentralized Resource Allocation Process: Part I," Econometrica, Econometric Society, vol. 43(2), pages 187-221, March.
    3. Gjerstad, Steven & Dickhaut, John, 1998. "Price Formation in Double Auctions," Games and Economic Behavior, Elsevier, vol. 22(1), pages 1-29, January.
    4. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    5. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-1063, September.
    6. Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
    7. Hurwicz, Leonid, 1995. "What is the Coase Theorem?," Japan and the World Economy, Elsevier, vol. 7(1), pages 49-74, May.
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    Cited by:

    1. Miller, Ross M., 2008. "Don't let your robots grow up to be traders: Artificial intelligence, human intelligence, and asset-market bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 153-166, October.

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    More about this item

    Keywords

    Double auction; Market experiment; Edgeworth exchange; Bounded rationality;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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