Abstract: We investigate experimentally how the share of experienced traders in doubleauction asset markets affects trading, in particular the occurrence of bubble-crash pricing patterns. In each session, six subjects trade in three successive market rounds and gain experience. In a fourth round, depending on the treatment, two or four experienced subjects are replaced by inexperienced subjects. The results are compared to earlier findings when all traders were either inexperienced or experienced. We explore what can be learned by analogy between these laboratory findings and the performance of naturally occurring markets.

We study the structure of markets when traders are given the opportunity to create their own market, as on the internet. On the internet, public exchanges have in many cases been replaced by private exchanges. We use experiments to investigate possible reasons for the failure of public exchanges. In our experimental markets, when traders make an offer, they decide whom to inform about the offer. Participants typically inform all traders on the other side of the market, but not on their own side, resulting in a private, not a public exchange. This private exchange leads to the same outcomes in terms of prices and efficiency as a double auction. When we impose transaction costs on the buyers, only the sellers make private offers, which results in an inefficient market. When we provide incentives for sellers to inform each other, most of the sellers reveal a strict preference to hide offers from rivals. However, when sellers do share price information, they attain a higher price and benefit collectively.

A reinterpretation

We experimentally examine a reinsurance market in which participants have differing information regarding the probability distribution over losses. The key question is whether the market equilibrium reflects traders maximizing value with respect to their different priors, or whether the equilibrium is one based on a common belief incorporating all participants ’ information. When assuming subjects are expected value maximizers, we reject both full information aggregation and no information aggregation equilibria. We discover, as in past individual choice insurance experiments, that buyers under-assess the probabilities of large loss states, or alternatively, subjects assign larger utility values to losses than to comparable gains. After accounting for these decision theoretic concerns, the non-aggregation of information hypothesis explains It is commonly thought that insurance markets facilitate the efficient sharing of risk, but whether they facilitate the efficient sharing of information is an open question.

In theory, competitive emission permit markets minimise total abatement cost for any emission ceiling. Permit markets are often imperfectly competitive, however, if they are thin and dominated by large firms. The dominant firm(s) could exercise market power and increase other firms ’ costs of pollution control, while reducing their own emission control costs. This paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organised using the double auction trading institution. Our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the Port Phillip Watershed in Victoria, Australia. We vary across treatments the initial (pre-trade) allocation of permits to sources, so that in one treatment the seller of permits is a monopolist and in another treatment the selling side of the market is duopolistic. We also vary the information that subjects have about the number and abatement costs of their competitors. We find that prices and seller profits are higher and efficiency is lower on average in the monopoly sessions compared to the duopoly sessions, but the differences are not substantial and are not statistically significant due to pronounced variation across sessions.

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Short Course Description: Auctions are among the oldest and robust institutions for exchange. In the last twenty-five years we have seen an unprecedented interest in auctions from theoretical and practical perspectives. The use of auctions increased dramatically both in scope and volume of transactions. Auctions are now routinely used to sell spectrum rights, privatization schemes, finance national debt and over the Internet (between producers and consumers as well as between business to business). In this course we start with Vickrey’s 1961 seminal work and build upon it by using modern tools of game theory with incomplete information. We will derive and characterize equilibria of the various auctions, analyze and compare their performances in terms of allocation efficiency and/or revenues capabilities. Many economists regard auction theory as the best application of game theory to economics. As such, auctions are (or ought to be) of interest also to the non specialists as they provide a model (canvas) to address many of the most fundamental questions in economics such as: price formation, information aggregation by non-centralized institutions, public policy issues (e.g., choice of auctions, providing additional