Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?

The bubble and burst pattern in asset markets is among the most replicable results in experimental economics. Using controlled laboratory experiments, we compare mispricing in markets organized by standard double auction rules with mispricing in markets organized two alternative sets clock auctions. The double Dutch auction, shown to be more efficient than the double auction in past commodity market experiments, does not eliminate bubbles. However, the English Dutch auction does yield prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in a declining fundamental value environment with an increasing cash-to-asset ratio.

Keywords: Asset Markets, Experimental Economics, Institutional Design

JEL Classification: C91, D02, D14, G12

Suggested Citation: Suggested Citation

Deck, Cary A. and Servátka, Maroš and Tucker, Steven James, Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best? (August 28, 2019). Available at SSRN: https://ssrn.com/abstract=3348134 or http://dx.doi.org/10.2139/ssrn.3348134