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Fads, Upward Sloping Demand and the Stability of Equilibria in an Experimental Market

Plott, Charles R. and Smith, Jared (1992) Fads, Upward Sloping Demand and the Stability of Equilibria in an Experimental Market. Social Science Working Paper, 816. California Institute of Technology , Pasadena, CA. (Unpublished)

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The objective of the paper is to study markets in which the value of the activity to any one person increases with the level with which the activity is undertaken by others. The general interpretation could be fads, mimicking behavior or some sort of belief formation process in which the beliefs or expectations of agents about some underlying state of nature are influenced by the buying behavior of other agents. The result is to create a market that can be modeled as having an upward sloping market demand curve. The questions posed are: (1) in the fad-like environment does the classical concept of equilibrium (as an equating of market demand and market supply) accurately predict market behavior; (2) can both stable and unstable equilibria be observed; and (3) which of the two classical concepts of stability best describes the conditions under with instability is observed? The results of the paper confirm some of the major findings of Plott and George who studied a similar environment with a downward sloping supply. In a market organized by the multiple unit double auction (MUDA), the equilibration at a demand equals supply equilibrium is observed under the conditions of a fad. Disequilibrium follows the dynamics of the Marshallian model as opposed to the Walrasian model.

Item Type:Report or Paper (Working Paper)
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Alternate Title:Instability of Equilibria in Experimental Markets: Upward-Sloping Demands, Externalities, and Fad-Like Incentives
Additional Information:The support of the National Science Foundation and the Laboratory for Experimental Economics and Political Science is gratefully acknowledged. Special thanks are given to the members of the Caltech workshop in experimental methods. Jared Smith was a Caltech undergraduate student who was enrolled in that class. Published as Plott, Charles R., and Jared Smith. "Instability of equilibria in experimental markets: upward-sloping demands, externalities, and fad-like incentives." Southern Economic Journal (1999): 405-426.
Group:Social Science Working Papers
Funding AgencyGrant Number
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Subject Keywords:Supply, Market demand, Economic externalities, Market prices, Demand curves, Demand side economics, Supply and demand, Supply curves, Game theory, Average prices
Series Name:Social Science Working Paper
Issue or Number:816
Record Number:CaltechAUTHORS:20170828-151300217
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80868
Deposited By: Jacquelyn Bussone
Deposited On:28 Aug 2017 23:03
Last Modified:03 Oct 2019 18:35

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