COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1623 Three Minimal Market Institutions with Human and Algorithmic
Agents: Juergen Huber, Martin Shubik and Shyam Sunder August 2007 We define and examine the performance of three minimal strategic market games
(sell-all, buy-sell, and double auction) in laboratory relative to the predictions of
theory. Unlike open or partial equilibrium settings of most other experiments, these
closed exchange economies have limited amounts of cash to facilitate transactions and
include feedback. General equilibrium theory, since it abstracts away from market
mechanisms and has no role for money or credit, makes no predictions about how the paths
of convergence to the competitive equilibrium may differ across alternative mechanisms.
Introduction of markets and money as carriers of process creates the possibility of
motion. The laboratory data reveal different paths, and different levels of allocative
efficiency in the three settings. The results suggest that abstracting away from all
institutional details does not help understand dynamic aspects of market behavior. For
example, the oligopoly effect of feedback from buying an endowed good is missed. Inclusion
of mechanism differences into theory may enhance our understanding of important aspects of
markets and money and help link conventional equilibrium analysis with dynamics. |
