Economic Theory

, Volume 60, Issue 2, pp 203–241 | Cite as

Learning and market clearing: theory and experiments

Research Article

Abstract

This paper investigates theoretically and experimentally whether traders learn to use market-clearing trading institutions or whether other (inefficient) market institutions can survive in the long run. Using a framework with boundedly rational traders, we find that market-clearing institutions are always stable under a general class of learning dynamics. However, we show that there exist other, non-market-clearing institutions that are also stable. Therefore, in the long run, traders may fail to coordinate exclusively on market-clearing institutions. Using a replica-economies approach, we find the results to be robust to large market size. The theoretical predictions were confirmed in a series of platform choice experiments. Traders coordinated on platforms predicted to be stable, including market-clearing as well as non-market-clearing ones, while platforms predicted to be unstable were avoided in the long run.

Keywords

Market institution Market clearing Coordination  Learning 

JEL Classification

C72 D4 D83 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CologneCologneGermany
  2. 2.ECARESUniversité Libre de BruxellesBrusselsBelgium

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