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Marshall and Walras, Disequilibrium Trades and the Dynamics of Equilibriation in the Continuous Double Auction Market

Plott, Charles R. and Roy, Nilanjan and Tong, Baojia (2011) Marshall and Walras, Disequilibrium Trades and the Dynamics of Equilibriation in the Continuous Double Auction Market. Social Science Working Paper, 1345. California Institute of Technology , Pasadena, CA. (Unpublished) http://resolver.caltech.edu/CaltechAUTHORS:20170725-165340096

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Abstract

Prices and quantities converge to the theoretical competitive equilibria in continuous, double auction markets. The double auction is not a tatonnement mechanism. Disequilibrium trades take place. The absence of any influence of disequilibrium trades, which have the capacity to change the theoretical equilibrium, appears to be due to a property found in the Marshallian model of single market adjustments. The Marshallian model incorporates a principle of self-organizing, coordination that mysteriously determines the sequence in which specific pairs of agents trade in an environment in which market identities and agent preferences are not public. Disequilibrium trades along the Marshallian path of trades do not change the theoretical equilibrium. The substance of this paper is to demonstrate that the Marshallian principle captures a natural tendency of the adjustment in single, continuous, double auction markets and to suggest how it takes place. The Marshallian model of quantity adjustment and the Walrasian model of market price adjustment can be seen as companion theories that explain the allocation and price processes of a market. The Marshallian model explains the evolution of the allocation, who will meet and trade, and the Walrasian excess demand explains the evolution of prices when they do.


Item Type:Report or Paper (Working Paper)
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Additional Information:The financial support of the Gordon and Betty Moore Foundation and the Caltech Laboratory for Experimental Economics and Political Science is gratefully acknowledged. We thank Donald A. Walker and Jack Stecher for comments. We also acknowledge participants at Experimental Economics, Accounting and Society: A Conference in Memory of John Dickhaut held at the Chapman University, January 2012.
Group:Social Science Working Papers
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Funding AgencyGrant Number
Gordon and Betty Moore FoundationUNSPECIFIED
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Subject Keywords:market micro structure, price discovery, price dynamics, market volume, experiments
Classification Code:JEL: B10, B12, D01, D03, D46
Record Number:CaltechAUTHORS:20170725-165340096
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20170725-165340096
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79362
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:07 Aug 2017 18:52
Last Modified:07 Aug 2017 18:52

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