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Extreme Walrasian Dynamics: The Gale Example in the Lab

Crockett, Sean and Oprea, Ryan and Plott, Charles (2011) Extreme Walrasian Dynamics: The Gale Example in the Lab. American Economic Review, 101 (7). pp. 3196-3220. ISSN 0002-8282.

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We study David Gale's (1963) economy using laboratory markets. Tatonnement theory predicts prices will diverge from an equitable interior equilibrium toward 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. We show surprisingly strong support for these predictions. In most sessions one side of the market eventually outgains the other by more than 20 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:Article
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URLURL TypeDescription ItemSSWP 1329
Additional Information:© 2011 American Economic Association. We thank three anonymous referees, Omar Al-Ubaydli, Dan Friedman, Stephen Spear, Steve Gjerstad, Bart Wilson, seminar participants at Baruch College, participants at the 2009 Economic Science Association North American Regional Meeting, and participants at the ninth Society for the Advancement of Economic Theory Conference. We also thank Paul J. Brewer, Hsing Yang Lee, and Travis Maron for developing the laboratory market system we used to conduct our experiment (see http:// marketscape, for details). For financial support, Crockett thanks the City University of New York through PSC-CUNY award 60095-3738. Plott thanks The Gordon and Betty Moore Foundation and the Caltech Laboratory for Experimental Economics and Political Science. Formerly SSWP 1329.
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Gordon and Betty Moore FoundationUNSPECIFIED
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Issue or Number:7
Classification Code:JEL Classifications: C92; D50
Record Number:CaltechAUTHORS:20140521-075804142
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Official Citation:Crockett, Sean, Ryan Oprea, and Charles Plott. 2011. "Extreme Walrasian Dynamics: The Gale Example in the Lab." American Economic Review, 101(7): 3196-3220.
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:45859
Deposited By: Ruth Sustaita
Deposited On:28 May 2014 21:48
Last Modified:03 Oct 2019 06:37

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