3 - Market Experiments

Question 1

When was Porter and Smith published?

Answer 1

2003

Question 2

Corroborates predictions made by economic theory, however this doesn’t work so well in other markets

Answer 2

Smith (1962)

Question 3

When was Gode and Sunder published? What was it about?

Answer 3

1993

zero intelligence traders

Question 4

The expected dividend of a share was computed and reported to subjects

Answer 4

Porter and Smith (2003)

Question 5

What subject are you studying now?

Answer 5

Market Experiments

Question 6

Shows typical results from prediction market experiments

Answer 6

Smith (1962)

Question 7

What are ‘zero intelligence traders’ in Gode and Sunder (1993)

Answer 7

they post random prices to buy/sell

buy at random prices as long as trade is profitable

Question 8

Iowa electronic market for US elections outperforms other aggregation methods like opinion polls

Answer 8

Deck and Porter (2013)

Question 9

When was Huck et al. published?

Answer 9

2004

Question 10

Can markets arrive at certain outcome given each participant’s mutually exclusive information about what events will NOT occur?

Answer 10

Deck and Porter (2013)

Question 11

finds that two firms often succeed to collude (quantity below NE) but there’s almost never collusion with 4 firms

Answer 11

Huck et al. (2004)

Question 12

Price convergence decreases across trading periods

Answer 12

Smith (1962)

Question 13

Which paper involves traders being given an initial allocation of cash and shares of an asset, and given 15 trading periods to trade in a double auction format?

Answer 13

Porter and Smith (2003)

Question 14

Efficiency close to 100%

Answer 14

Smith (1962)

Question 15

How does a double auction work?

Answer 15

process of buying and selling goods when potential buyers submit their bids and potential sellers simultaneously submit their ask prices to an auctioneer, and then an auctioneer chooses some price p that clears the market

Question 16

What seems to cause the appearance of bubbles in Porter and Smith (2003)?

Answer 16

uncertainty about others’ behaviour, NOT uncertainty about dividends

Question 17

From Smith (1962), if consumer surplus > product surplus, from which direction do prices converge?

Answer 17

From above

and vice versa for CS < PS

Question 18

Which factor increases competition in Huck et al. (2004)?

Answer 18

Information about rivals’ actions and profits

Question 19

prediction markets can be highly efficient even when there are “irrational” traders so long as traders are not setting prices

Answer 19

Deck and Porter (2013)

Question 20

When was Smith published?

Answer 20

1962

Question 21

Factors reducing competition in Huck et al. (2004)?

Answer 21

repeated interaction
pre-play communication
experience

Question 22

Which paper was published in 2013

Answer 22

Deck and Porter

Question 23

What were the results from Gode and Sunder (1993)?

Answer 23

1. allocative efficiency of double auctions derives largely from its structure, independent of traders’ motivation, intelligence, or learning.
2. Adam Smith’s invisible hand may be more powerful than some may have thought; it can generate aggregate rationality not only from individual rationality but also from individual irrationality.

Question 24

What type of price deviation was observed in Porter and Smith (2003)? What happened?

Answer 24

Large deviation from fundamental prices

Price bubble that emerges and crashes by the end of the game

Question 25

summarises several Cournot Oligopolist experiments from literature

Answer 25

Huck et al. (2004)

Question 26

Looks at wisdom of crowds in prediction markets (special case of asset market where value of the trade depends on the outcome of some uncertain event).

Answer 26

Deck and Porter (2013)

Question 27

mean price and quantity are both close to the competitive equilibrium

Answer 27

Smith (1962)

Question 28

Examines collusion in Oligopoly markets

Answer 28

Huck et al. (2004)