Three Minimal Market Institutions with Human and Algorithmic Agents: Theory and Experimental Evidence

53 Pages Posted: 28 Jan 2010

See all articles by Juergen Huber

Juergen Huber

University of Innsbruck; University of Vienna - Department of Finance

Martin Shubik

Yale University - School of Management; Yale University - Cowles Foundation

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Multiple version iconThere are 3 versions of this paper

Date Written: January 27, 2010

Abstract

We define and examine three minimal market games (sell-all, buy-sell, and double auction) in the laboratory relative to the predictions of theory. These closed exchange economies have some cash to facilitate transactions, and include feedback. The experiment reveals that (1) the competitive general equilibrium (CGE) and non-cooperative (NCE) models are reasonable anchors to locate most but not all the observed outcomes of the three market mechanisms; (2) outcomes tend to get closer to CGE predictions as the number of players increases; (3) prices and allocations in double auctions deviate persistently from CGE predictions; (4) the outcome paths across the three market mechanisms differ significantly and persistently; (5) importance of market structures for outcomes is reinforced by algorithmic trader simulations; and (6) none of the three markets dominates the others across six measures of performance. Inclusion of some mechanism differences into theory may enhance our understanding of important aspects of markets.

Keywords: Strategic Market Games, Laboratory Experiments, Minimally Intelligent Agents, Adaptive Learning Agents, General Equilibrium

JEL Classification: C92, D43, D51, D58, L13

Suggested Citation

Huber, Juergen and Shubik, Martin and Sunder, Shyam, Three Minimal Market Institutions with Human and Algorithmic Agents: Theory and Experimental Evidence (January 27, 2010). Cowles Foundation Discussion Paper No. 1623R. Available at SSRN: https://ssrn.com/abstract=1543256 or http://dx.doi.org/10.2139/ssrn.1543256

Juergen Huber

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

University of Vienna - Department of Finance ( email )

Bruenner Strasse 72
Vienna, 1210
Austria

Martin Shubik (Contact Author)

Yale University - School of Management ( email )

Box 208200
New Haven, CT 06520-8200
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3694 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_shubik.htm

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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