Arlington W. Williams

Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets

Spot asset trading is studied where the only external source of value is an independent draw from a common information dividend distribution at the end of each of fifteen trading periods. Fourteen of twenty-two experiments exhibit price bubbles. This tendency to bubble decreases with trader experience. The regression of changes in mean price on lagged excess bids (bids minus offers in the previous period) supports the hypothesis that the intercept is minus the one-period expected dividend value, and the slope is positive, where excess bids measures excess demand attributable to homegrown capital gains expectations. Copyright 1988 by The Econometric Society.

Group size and the voluntary provision of public goods: experimental evidence utilizing large groups

Abstract New experimental evidence extending the investigation of free-riding behavior in public goods provision is presented. Procedures are developed to deal with the logistical problems inherent in experiments involving many subjects. Data from Voluntary Contribution Mechanism experiments are reported utilizing group sizes of 4, 10, 40 and 100. THese experiments provide replicable results that contradict the widely held view that a groups ability to provide the optimal level of a pure public good is inversely related to group size. On the contrary, groups of size 40 and 100 provided the public good more efficiently than groups of size 4 and 10. Several possible alternative explanations are discussed.

Price bubbles and crashes in experimental call markets

Abstract Price bubbles relative to intrinsic dividend value are observed using a call market trading institution. Market prices tend to track intrinsic value only when the same group of highly experienced traders participate in three consecutive 15-round markets.

The effects of market organization on conspiracies in restraint of trade

Abstract Mindful of the market structure-conduct-performance paradigm fundamental to industrial organization research, this paper uses laboratory experimental techniques to study the impact of conspiratorial opportunities on market performance. We compare ‘posted-offer’ markets where sellers (but not buyers) are all conspiratorial opportunities with observations from three control groups: (1) posted-offer markets without conspiratorial opportunities, (2) ‘double-auction’ markets with conspiratorial opportunities and (3) posted-offer markets with true single-seller monopolists. The basic conclusions generated by our experimental design are: (1) seller conspiracies in posted-offer markets tend to raise prices (but not profits) relative to similarly organized markets without conspiracies, (2) posted-offer conspiracies tend to generate higher prices (but not profits) than double-auction conspiracies, and (3) posted-offer monopolies tend to generate higher profits (but not prices) then posted-offer conspiracies.

The boundaries of competitive price theory: convergence, expectations, and transaction costs

“Boundary experiments are explicitly associated with some set of laws and consist of fact-finding inquiries designed to fix the range and application of the laws, particularly with regard to extreme conditions” (Kaplan, 1964, p. 150). In the laboratory experiments reported here, we probed three distinct boundaries of the application of the law of supply and demand in markets organized as double auctions.This “law” of competitive market behavior predicts that prices will occur at a level where the quantity supplied by sellers (positively related to price) is equal to the quantity demanded by buyers (negatively related to price).Any price where quantity demanded equals quantity supplied is referred to as a competitive equilibrium (CE) price; the corresponding exchange volume is referred to as the CE quantity.The specific design parameters utilized in our experimental markets were chosen to address the following research questions. 1. In trading between b buyers and s sellers, how small must s be to invalidate the application of the law of supply and demand as a predictor of market outcomes? 2. In a market where the law of supply and demand predicts that all gains from exchange will be earned by only one side of the market (either buyers or sellers), will actual contract prices converge to the price predicted by the law of supply and demand? What minimal compensation will subjects on the other (zero profit) side of the market need to induce them to participate in trade? 3. In a market where any feasible price is also a CE price (generated by an unorthodox box-shaped supply and demand configuration where the quantity demanded equals the quantity supplied at all prices between the upper and lower bounds of…

Comparing Small-Group and Individual Behavior in Lottery-Choice Experiments

Lottery-choice experiments are conducted to compare risk preferences revealed by three-person groups versus isolated individuals. A lottery-choice experiment consists of a menu of paired lottery choices structured so that the crossover point from a low-risk to a high-risk lottery can be used to infer the degree of risk aversion. A between-subjects experiment of group versus individual lottery-choice decisions reveal that there is not a significant difference in the average crossover point, but lottery choices are affected by a significant interaction between subject composition (individual or group) and lottery winning percentage. Also, a three-phased individual-group-individual sequenced experiment reveals that the count of safe lotteries chosen by groups is, on average, significantly greater than the mean of the individual members. Finally, making a phase-two group decision has a significant impact on subsequent phase-three individual decisions relative to the initial phase-one (individual) decisions.

Computerized Laboratory Exercises for Microeconomics Education: Three Applications Motivated by Experimental Economics

The advancement of experimental economics brought with it refinements in the classroom games and simulations used in the teaching of economics. In this lead article, Williams and Walker introduce the use of experiments in the teaching of economics via three computerized exercises that are a byproduct of their research: the monopoly posted-offer market exercise, a free rider activity, and a stock market experiment.

Anonymity and the voluntary provision of public goods

Abstract Experimental research investigating the voluntary provision of a pure public good has shown that participants consistently allocate a portion of their resources to this good when the full-information noncooperative game theoretic (Nash) prediction is to allocate zero resources to this good. This paper considers whether the discrepancy between empirical results and the Nash prediction is due to a lack of anonymity. We report a sequence of public goods experiments in which participants do not know the identity of other group members and the experimenter cannot associate any participants decisions with that persons identity. The results indicate that these procedures do not alter the tendency for token allocations to differ from the Nash prediction.

The effects of rent asymmetries in experimental auction markets

Abstract We report the results of twelve ‘double-auction’ market experiments designed to analyze the effects of asymmetric induced supply and demand configurations on the price convergence path toward a competitive equilibrium. The proposition (convergence bias) that prices tend to approach the competitive equilibrium from above (below) when consumer surplus is greater (less) than producer surplus cannot be rejected. We do, however, reject the proposition (convergence symmetry) that these convergence biases are of equal absolute magnitude. Excesses of producer over consumer surplus are found to have a more pronounced effect on the sequence of contract prices.

The Voluntary Provision of a Pure Public Good with Diminishing Marginal Returns

In experiments investigating the voluntary provision of a pure public good, participants consistently allocate resources to this good when the Nash prediction is to allocate nothing. This paper explores the robustness of this result when the Nash prediction calls for a division of resources between the private and public goods. We consider how a change in individual resource endowments and supplemental earnings information affect allocations to the public good. Results indicate that, under both the high and low endowment conditions, groups continue to allocate more resources than the Nash prediction. However, providing participants with detailed instructions that describe the declining marginal benefit to the public good leads to a significant decrease in allocations to the public good.