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Extreme Walrasian Dynamics: The Gale Example in the Lab

Crockett, Sean and Oprea, Ryan and Plott, Charles R. (2010) Extreme Walrasian Dynamics: The Gale Example in the Lab. Social Science Working Paper, 1329. California Institute of Technology , Pasadena, CA.

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We study the classic Gale (1963) economy using laboratory markets. Tatonnement theory predicts prices will diverge from an equitable interior equilibrium towards infinity or zero depending only on initial prices. The inequitable equilibria determined by these dynamics give all gains from exchange to one side of the market. Our results show surprisingly strong support for these predictions. In most sessions one side of the market eventually outgains the other by more than twenty times, leaving the disadvantaged side to trade for mere pennies. We also find preliminary evidence that these dynamics are sticky, resisting exogenous interventions designed to reverse their trajectories.

Item Type:Report or Paper (Working Paper)
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Group:Social Science Working Papers
Subject Keywords:Tatonnement, Disequilibrium, General Equilibrium, Experiment
Classification Code:JEL codes: C92, D50
Record Number:CaltechAUTHORS:20100928-153906850
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:20209
Deposited By: Victoria Mason
Deposited On:29 Sep 2010 18:47
Last Modified:02 Nov 2017 20:50

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