Extreme Walrasian Dynamics: The Gale Example in the Lab

American Economic Review, Vol. 101(7), pp. 3196-3220, 2011

44 Pages Posted: 5 May 2010 Last revised: 20 Mar 2019

See all articles by Sean Crockett

Sean Crockett

Chapman University

Ryan Oprea

University of California, Santa Cruz

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences

Date Written: April 2, 2010

Abstract

We study the classic Gale (1963) economy using laboratory markets. Tatonnement theory predicts prices will diverge from an equitable interior equilibrium towards infinity or zero depending only on initial prices. The inequitable equilibria selected by these dynamics give all gains from exchange to one side of the market. Our results show surprisingly strong support for these predictions. In most sessions one side of the market eventually outgains the other by more than twenty times, leaving the disadvantaged side to trade for mere pennies. We also find evidence that these dynamics are sticky, resisting exogenous interventions designed to reverse their trajectories.

Keywords: Tatonnement, Disequilibrium, General Equilibrium, Experiment

JEL Classification: C92, D50

Suggested Citation

Crockett, Sean and Oprea, Ryan and Plott, Charles R., Extreme Walrasian Dynamics: The Gale Example in the Lab (April 2, 2010). American Economic Review, Vol. 101(7), pp. 3196-3220, 2011, Available at SSRN: https://ssrn.com/abstract=1600346 or http://dx.doi.org/10.2139/ssrn.1600346

Sean Crockett (Contact Author)

Chapman University ( email )

Orange, CA 92866
United States

Ryan Oprea

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
337 Baxter Hall
Pasadena, CA 91125
United States
626-395-4209 (Phone)

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