3 - Market Experiments Flashcards
When was Porter and Smith published?
2003
Corroborates predictions made by economic theory, however this doesn’t work so well in other markets
Smith (1962)
When was Gode and Sunder published? What was it about?
1993
zero intelligence traders
The expected dividend of a share was computed and reported to subjects
Porter and Smith (2003)
What subject are you studying now?
Market Experiments
Shows typical results from prediction market experiments
Smith (1962)
What are ‘zero intelligence traders’ in Gode and Sunder (1993)
they post random prices to buy/sell
buy at random prices as long as trade is profitable
Iowa electronic market for US elections outperforms other aggregation methods like opinion polls
Deck and Porter (2013)
When was Huck et al. published?
2004
Can markets arrive at certain outcome given each participant’s mutually exclusive information about what events will NOT occur?
Deck and Porter (2013)
finds that two firms often succeed to collude (quantity below NE) but there’s almost never collusion with 4 firms
Huck et al. (2004)
Price convergence decreases across trading periods
Smith (1962)
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?
Porter and Smith (2003)
Efficiency close to 100%
Smith (1962)
How does a double auction work?
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
What seems to cause the appearance of bubbles in Porter and Smith (2003)?
uncertainty about others’ behaviour, NOT uncertainty about dividends
From Smith (1962), if consumer surplus > product surplus, from which direction do prices converge?
From above
and vice versa for CS < PS
Which factor increases competition in Huck et al. (2004)?
Information about rivals’ actions and profits
prediction markets can be highly efficient even when there are “irrational” traders so long as traders are not setting prices
Deck and Porter (2013)
When was Smith published?
1962
Factors reducing competition in Huck et al. (2004)?
repeated interaction
pre-play communication
experience
Which paper was published in 2013
Deck and Porter
What were the results from Gode and Sunder (1993)?
- allocative efficiency of double auctions derives largely from its structure, independent of traders’ motivation, intelligence, or learning.
- 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.
What type of price deviation was observed in Porter and Smith (2003)? What happened?
Large deviation from fundamental prices
Price bubble that emerges and crashes by the end of the game
summarises several Cournot Oligopolist experiments from literature
Huck et al. (2004)
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).
Deck and Porter (2013)
mean price and quantity are both close to the competitive equilibrium
Smith (1962)
Examines collusion in Oligopoly markets
Huck et al. (2004)
