Price Dynamics in General Equilibrium Experiments

18 Pages Posted: 4 Jun 2013

Date Written: July 2013

Abstract

General equilibrium (GE) theory faces several related challenges. Classical theories of out‐of‐equilibrium adjustment are intuitive but implausibly centralized. Further, standard restrictions on individual preferences place little structure on aggregate excess demand functions. Amongst other issues, this fact implies that economies can be unstable under classical dynamics, and thus instability appears to be an unavoidable feature of GE theory. This paper recounts laboratory studies of GE environments which reveal that classical theories of dynamics do, in fact, organize market activity surprisingly well. These experiments suggest that the Walrasian auctioneer, for example, appears to be a constructive abstraction, and that instability should be accommodated within theory rather than circumscribed. Laboratory applications of GE theory focused on issues beyond stability and dynamics are also briefly surveyed.

Keywords: General equilibrium theory, Experimental economics, Stability

Suggested Citation

Crockett, Sean, Price Dynamics in General Equilibrium Experiments (July 2013). Journal of Economic Surveys, Vol. 27, Issue 3, pp. 421-438, 2013, Available at SSRN: https://ssrn.com/abstract=2273991 or http://dx.doi.org/10.1111/joes.12014

Sean Crockett (Contact Author)

Chapman University ( email )

Orange, CA 92866
United States

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