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Divergence and Convergence in Scarf Cycle Environments: Experiments and Predictability in the Dynamics of General Equilibrium Systems

Gillen, Benjamin J. and Hirota, Masayoshi and Hsu, Ming and Plott, Charles R. and Rogers, Brian W. (2005) Divergence and Convergence in Scarf Cycle Environments: Experiments and Predictability in the Dynamics of General Equilibrium Systems. Social Science Working Paper, 1239. California Institute of Technology , Pasadena, CA. (Unpublished)

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Previous experimental work demonstrates the power of classical theories of economic dynamics to accurately characterize equilibration in multiple market systems. Building on the literature, this study examines the behavior of experimental continuous double auction markets in convergence-challenging environments identified by Scarf (1960) and Hirota (1981). The experiments provide insight into two important economic questions: (a) do markets necessarily converge to a unique interior equilibrium? and (b) which model, among a set of classical specifications, most accurately characterizes observed price dynamics? We observe excess demand driven prices spiraling outwardly away from the interior equilibrium prices as predicted by the theory of disequilibrium price dynamics. We estimate a structural model establishing that partial equilibrium dynamics characterize price changes even in an unstable general equilibrium environment. We observe linkages between excess demand in one market and price changes in another market but the sign of expected price change in a market does not depend on the magnitude of excess demand in other markets unless disequilibrium is severe.

Item Type:Report or Paper (Working Paper)
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Additional Information:The financial support of the John Templeton Foundation the Rising Tide Foundation and the Caltech Laboratory for Experimental Economics and Political Science are gratefully acknowledged. Comments of Peter Bossaerts, Anjan Mukherji and Bill Zame contributed significantly.
Group:Social Science Working Papers
Funding AgencyGrant Number
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
John Templeton FoundationUNSPECIFIED
Rising Tide FoundationRTF-19-500
Subject Keywords:general equilibrium, stability, experiments
Series Name:Social Science Working Paper
Issue or Number:1239
Classification Code:JEL: D50, C92, E3
Record Number:CaltechAUTHORS:20191018-100829516
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:99358
Deposited By: Katherine Johnson
Deposited On:18 Oct 2019 17:13
Last Modified:07 May 2020 15:04

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