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The Rationality of Prices and Volume in Experimental Markets

Camerer, Colin (1992) The Rationality of Prices and Volume in Experimental Markets. Organizational Behavior and Human Decision Processes, 51 (2). pp. 237-272. ISSN 0749-5978. http://resolver.caltech.edu/CaltechAUTHORS:20110211-111851618

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Abstract

Market experiments designed to test whether individual errors are reduced by markets generally indicate that errors do make prices or trading volume irrational. For example, in markets for assets of uncertain value a "representativeness"- based theory predicts deviations of prices from Bayesian predictions. Endowment effects and optimism about relative trading ability lead to trading volumes which are too low or too high. Forecasts of future prices in markets violate rational expectations restrictions. And subjects do not ignore their own information when making forecasts of the forecasts of others. These data suggest that individual errors are often reduced, but not eliminated, in experimental markets under ideal learning conditions. They cast doubt on the optimistic presumption that prices negotiated in competitive market settings will reflect true values. The markets are unusually competitive, but the results suggest that errors are likely to be important in two-party negotiations and other settings too.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1016/0749-5978(92)90013-WDOIUNSPECIFIED
http://www.sciencedirect.com/science/article/B6WP2-4CYG22J-3W/2/0e268f8f9991323ff9e06fa174581e29PublisherUNSPECIFIED
Additional Information:© 1992 Academic Press, Inc. Available online 27 July 2004. The financial support of the Wharton Risk and Decision Processes Center and the National Science Foundation (SES 87-08566, 88-09299) is gratefully acknowledged. The author thanks the editors of this volume, and three anonymous reviewers, for many helpful comments.
Funders:
Funding AgencyGrant Number
Wharton Risk and Decision Processes Center UNSPECIFIED
NSFSES 87-08566
NSFSES 88-09299
Record Number:CaltechAUTHORS:20110211-111851618
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20110211-111851618
Official Citation:Colin Camerer, The rationality of prices and volume in experimental markets, Organizational Behavior and Human Decision Processes, Volume 51, Issue 2, Decision Processes in Negotiation, March 1992, Pages 237-272, ISSN 0749-5978, DOI: 10.1016/0749-5978(92)90013-W. (http://www.sciencedirect.com/science/article/B6WP2-4CYG22J-3W/2/0e268f8f9991323ff9e06fa174581e29)
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:22136
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:20 Feb 2011 00:57
Last Modified:20 Feb 2011 00:57

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