COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1623R Three Minimal Market Institutions with Human and Algorithmic
Agents: Juergen Huber, Martin Shubik and Shyam Sunder August 2007 We define and examine three minimal market games (sell-all, buy-sell, and double
auction) in the laboratory relative to the predictions of theory. These closed exchange
economies have some cash to facilitate transactions, and include feedback. The experiment
reveals that (1) the competitive general equilibrium (CGE) and non-cooperative (NCE)
models are reasonable anchors to locate most but not all the observed outcomes of the
three market mechanisms; (2) outcomes tend to get closer to CGE predictions as the number
of players increases; (3) prices and allocations in double auctions deviate persistently
from CGE predictions; (4) the outcome paths across the three market mechanisms differ
significantly and persistently; (5) importance of market structures for outcomes is
reinforced by algorithmic trader simulations; and (6) none of the three markets dominates
the others across six measures of performance. Inclusion of some mechanism differences
into theory may enhance our understanding of important aspects of markets. |
