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Experimental Economics

, Volume 5, Issue 3, pp 179–208 | Cite as

On the Behavioral Foundations of the Law of Supply and Demand: Human Convergence and Robot Randomness

  • Paul J. Brewer
  • Maria Huang
  • Brad Nelson
  • Charles R. Plott
Article

Abstract

This research builds on the work of D.K. Gode and Shyam Sunder who demonstrated the existence of a strong relationship between market institutions and the ability of markets to seek equilibrium—even when the agents themselves have limited intelligence and behave with substantial randomness. The question posed is whether or not market institutions account for the operation of the law of supply and demand in markets populated by humans with no role required of human rationality. Are institutions responsible for the operations of the law of supply and demand or are behavioral principles also at work? Experiments with humans and simulations with robots both conducted in conditions in which major institutional and structural aids to convergence were removed, produced clear answers. Human markets converge, while robot markets do not. The structural and institutional features certainly facilitate convergence under conditions of substantial irrationality, but they are not necessary for convergence in markets in which agents have the rationality of humans.

experiments rationality equilibration robots 

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Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  • Paul J. Brewer
    • 1
  • Maria Huang
    • 2
  • Brad Nelson
    • 2
  • Charles R. Plott
    • 3
  1. 1.Center for Experimental Business Research, Department of EconomicsHong Kong University of Science and TechnologyHong Kong
  2. 2.California Institute of TechnologyPasadenaUSA
  3. 3.Experimental Economics and Political Science LaboratoryCalifornia Institute of TechnologyPasadenaUSA

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