Advertisement

Economic Theory

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

Learning and market clearing: theory and experiments

  • Carlos Alós-FerrerEmail author
  • Georg Kirchsteiger
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 

Notes

Acknowledgments

We thank two anonymous referees, Ana B. Ania, Johannes Buckenmaier, Luis Corchón, Michihiro Kandori, Akihiko Matsui, Alex Possajennikov, and Jörgen Weibull for helpful comments and suggestions.

References

  1. Alós-Ferrer, C.: Finite population dynamics and mixed equilibria. Int. Game Theory Rev. 5(3), 263–290 (2003)CrossRefGoogle Scholar
  2. Alós-Ferrer, C., Kirchsteiger, G.: General equilibrium and the emergence of (non) market clearing trading institutions. Econ. Theory 44, 339–360 (2010). doi: 10.1007/s00199-009-0466-9 CrossRefGoogle Scholar
  3. Alós-Ferrer, C., Netzer, N.: The logit-response dynamics. Games Econ. Behav. 68, 413–427 (2010)CrossRefGoogle Scholar
  4. Alós-Ferrer, C., Netzer, N.: Robust stochastic stability. Econ. Theory 58(1), 31–57 (2015). doi: 10.1007/s00199-014-0809-z CrossRefGoogle Scholar
  5. Alós-Ferrer, C., Kirchsteiger, G., Walzl, M.: On the evolution of market institutions: the platform design paradox. Econ. J. 120(543), 215–243 (2010)CrossRefGoogle Scholar
  6. Ariely, D., Ockenfels, A., Roth, A.: An experimental analysis of ending rules in internet auctions. RAND J. Econ. 36, 890–907 (2005)Google Scholar
  7. Ausubel, L., Cramton, P.: Demand Reduction and Inefficiency in Multi-unit Auctions. Mimeo, New York (2002)Google Scholar
  8. Bajari, P., Hortaçsu, A.: The winner’s curse, reserve prices, and endogenous entry: empirical insights from eBay auctions. RAND J. Econ. 34, 329–355 (2003)CrossRefGoogle Scholar
  9. Benaïm, M., Weibull, J.: Deterministic approximation of stochastic evolution in games. Econometrica 71, 878–903 (2003)CrossRefGoogle Scholar
  10. Binmore, K., Samuelson, L.: Muddling through: Noisy equilibrium selection. J. Econ. Theory 74, 235–265 (1997)CrossRefGoogle Scholar
  11. Blume, L.: How noise matters. Games Econ. Behav. 44, 251–271 (2003)CrossRefGoogle Scholar
  12. Budish, E., Takeyama, L.: Buy prices in online auctions: irrationality on the internet. Econ. Lett. 72, 325–333 (2001)CrossRefGoogle Scholar
  13. Ellison, G.: Basins of attraction, long-run stochastic stability, and the speed of step-by-step evolution. Rev. Econ. Stud. 67, 17–45 (2000)CrossRefGoogle Scholar
  14. Fudenberg, D., Levine, D.: The Theory of Learning in Games. MIT Press, Cambridge (1998)Google Scholar
  15. Gerber, A., Bettzüge, M.O.: Evolutionary choice of markets. Econ. Theory 30, 453–472 (2007). doi: 10.1007/s00199-005-0063-5 CrossRefGoogle Scholar
  16. Goeree, J.K., Holt, C.A., Palfrey, T.R.: Regular quantal response equilibrium. Exp. Econ. 8, 347–367 (2005)CrossRefGoogle Scholar
  17. Holt, C.: Industrial Organization: A Survey of Laboratory Research. In: Kagel, J., Roth, A. (eds.) Handbook of Experimental Economics. Princeton University Press, Princeton (1995)Google Scholar
  18. Ishibuchi, H., Oh, C., Nakashima, T.: Designing a Decision Making System for a Market Selection Game. Mimeo, New York (2002)Google Scholar
  19. Kandori, M., Rob, R.: Evolution of equilibria in the long run: a general theory and applications. J. Econ. Theory 65, 383–414 (1995)CrossRefGoogle Scholar
  20. Kandori, M., Mailath, G.J., Rob, R.: Learning, mutation, and long run equilibria in games. Econometrica 61, 29–56 (1993)CrossRefGoogle Scholar
  21. Karlin, S., Taylor, H.M.: A First Course in Stochastic Processes, 2nd edn. Academic Press, San Diego (1975)Google Scholar
  22. Kugler, T., Neeman, Z., Vulkan, N.: Markets versus negotiations: an experimental analysis. Games Econ. Behav. 56, 121–134 (2006)CrossRefGoogle Scholar
  23. Lucking-Reiley, D.: Auctions on the internet: what’s being auctioned, and how? J. Ind. Econ. 48(3), 227–252 (2000)CrossRefGoogle Scholar
  24. Madhavan, A.: Trading mechanisms in securities markets. J. Finance 47(2), 607–641 (1992)CrossRefGoogle Scholar
  25. McKelvey, R.D., Palfrey, T.R.: Quantal response equilibria for normal form games. Games Econ. Behav. 10(1), 6–38 (1995)CrossRefGoogle Scholar
  26. Plott, C.: Industrial organization theory and experimental economics. J. Econ. Lit. 20, 1485–1587 (1982)Google Scholar
  27. Quan, D.C.: Real Estate Auctions: A Survey of Theory and Practice. J. Real Estate Finance Econ. 9, 23–49 (1994)CrossRefGoogle Scholar
  28. Reynolds, S., Wooders, J.: Auctions with a buy price. Econ. Theory 38, 9–39 (2009). doi: 10.1007/s00199-006-0182-7 CrossRefGoogle Scholar
  29. Samuelson, L.: Stochastic stability in games with alternative best replies. J. Econ. Theory 64, 35–65 (1994)CrossRefGoogle Scholar
  30. Samuelson, L.: Evolutionary Games and Equilibrium Selection. MIT Press, Cambridge (1997)Google Scholar
  31. Schlag, K.: Why imitate, and if so, how? A boundedly rational approach to multi-armed bandits. J. Econ. Theory 78, 130–156 (1998)CrossRefGoogle Scholar
  32. Shi, F.: Long-run technology choice with endogenous local capacity. Econ. Theory 59(2), 377–399 (2015). doi: 10.1007/s00199-014-0838-7 CrossRefGoogle Scholar
  33. Young, P.: The evolution of conventions. Econometrica 61, 57–84 (1993)CrossRefGoogle Scholar
  34. Zumpano, L.V., Elder, H.W., Baryla, E.A.: Buying a house and the decision to use a real estate broker. J. Real Estate Finance Econ. 13, 169–181 (1996)CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

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

Personalised recommendations