Camerer, Colin F. and Weigelt, Keith (1993) Convergence in experimental double auctions for stochastically live assets. In: The Double Auction Market: Institutions, Theories, and Evidence. Proceedings Volume in the Santa Fe Institute Studies in the Sciences of Complexity (14). Addison-Wesley , Reading, MA, pp. 355-396. ISBN 0-201-62263-7 http://resolver.caltech.edu/CaltechAUTHORS:20110217-073631710
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We report market experiments in which subjects trade stochastically lived assets that pay a dividend each period and live from period to period with a known probability (.85). Since the probability is like a discount rate, the experiments test whether prices converge to discounted dividend value. We find that prices converge slowly to the discounted dividend value, from below; experienced subjects traded at prices close to the discounted dividend value. The forces creating convergence in this setting appear to be fundamentally different than in most other settings: minimal rationality in information-rich auctions is insufficient to produce convergence. Instead, convergence seems to be caused by one speculator buying much of the supply and holding it for several periods, which causes prices to rise. When prices overshot the discounted dividend value, they were slow to converge downward. Trading volume and allocative efficiency were often low during convergence (due to the speculator's behavior).
|Item Type:||Book Section|
|Additional Information:||© 1993 Addison-Wesley. This research was supported by the Richard Paget Research Chair at Northwestern University and the Strategic Research Management Fund at New York University. We thank several anonymous referees, Andy Daughety, Dave Grether, Ron King, Marc Knez , Tom Palfrey, Charles Plott, Vernon Smith, Martin Weber, Arlington Williams, seminar participants at Northwestern, NYU, Caltech, Penn, and the Public Choice Society/Economic Science Association meetings, the Santa Fe Double Auction Markets conference, and especially Jack Farley, Peter Knez, and Marcy Lynch, for comments and help.|
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|Deposited By:||Tony Diaz|
|Deposited On:||08 Mar 2011 23:07|
|Last Modified:||08 Mar 2011 23:07|
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