The original double auction studies of supply and demand markets established their strong efficiency and equilibrium convergence behavior using economically unsophisticated and untrained subjects. The results were unexpected because all individual costs and values were private and dependent entirely on the market trading process to aggregate the dispersed information into socially desirable outcomes. The exchange environment, however, corresponded to that of perishable, and not re-traded goods in which participants were specialized as buyers or sellers. We report experiments in repeated single-period markets where tradability, and buyer-seller role specialization, is varied by imposing or relaxing a restriction on re-trade within each period. In re-trade markets scope is given to speculative motives unavailable where goods perish on purchase. We observe greatly increased trade volume and decreased efficiency but subject experience increases efficiency. Observed speculation slows convergence by impeding the process whereby individuals learn from the market whether their private circumstances lead them to specialize as buyers or sellers.durable goods | specialization of trade | speculation and liquidity E quilibrium between supply and demand (S&D) based on subjective marginal unit value was first articulated by Jevons (1) in 1862.* The model is here characterized by buyers whose consumption values vary for a commodity and sellers who can supply the commodity at varying costs. When a buyer buys a unit, both buyer and seller earn a private surplus. There exists a price at which quantity demanded equals quantity supplied defined as the equilibrium price and quantity. At this price, the total social surplus is maximized, and full efficiency is achieved. Jevons (3) believed that this theoretical equilibrium would not be achievable unless all participants had "perfect knowledge of the conditions of supply and demand, and the consequent ratio of exchange" or price (3).The theory was tested in the laboratory one century later, yielding the unanticipated result of rapid convergence to efficient outcomes. Naïve subjects, learning through experience and informed only of their own marginal value (cost) information, have no prevision of the S&D equilibrium, but they discover it by sequential adjustment of their trades (4). Until experimental research established that the perfect knowledge conditions were neither necessary nor sufficient for empirical S&D equilibrium to be closely approximated by untrained subjects, Jevons' belief was widely accepted in economics [proposition 6 in the work by Smith (5)].These experiments share characteristics common to nondurable consumer goods and services in the national economy (e.g., hamburgers and haircuts): buyers and sellers who are specialized in their roles do not retrade, have premarket knowledge of their role, and values are realized immediately on purchase or sale. As we move from services and other items that perish with their purchase to goods durable enough to be retraded, the pa...
Documented results indicate prediction markets effectively aggregate information and form accurate predictions. This has led to a proliferation of markets predicting everything from the results of elections to a company's sales to movie box office receipts. Recent research suggests prediction markets are robust to manipulation attacks and resulting market outcomes improve forecast accuracy. However, we present evidence from the lab indicating that single-minded, well-funded manipulators can in fact destroy a prediction market's ability to aggregate informative prices and mislead those who are making forecasts based upon market predictions. However, we find that manipulators primarily influence market trades meaning outstanding bids and asks remain informative.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.