Filip Vesely

Market Efficiency: Evidence from a No-Bubble Asset Market Experiment

We report the results of an experiment that demonstrates that market experience is not necessary to eliminate bubbles in the type of asset markets studied in Smith et al. (1988). We introduce a pre-market phase in which subjects experience a dividend flow themselves by literally observing and receiving dividends for 12 periods. The robust bubble–crash phenomenon never occurs in our experiment. Our results provide strong evidence that so long as a majority of the subjects have full understanding of the structure of the dividend, market efficiency can be ensured.

Differentiated Assets: An Experimental Study on Bubbles

In this paper, we study if and how having two differentiated assets affects bubble formation. We consider differences in assets intrinsic characteristics as well as trading regulations that help differentiate two otherwise identical assets. We find that, compared to trading regulations, differences in assets intrinsic characteristics encourage more arbitrage across assets and thus help reduce mispricing significantly. We also find that short‐term speculation does not depend on how assets or markets are being differentiated. As a result, short‐term speculation cannot be used to explain why bubbles are smaller when two assets are intrinsically different than when they are not.

On Optimal and Neutrally Stable Population Equilibrium in Voluntary Partnership Prisoner's Dilemma Games

In a voluntary partnership prisoners dilemma, equilibrium discounted payoff at the origin of a partnership also serves as the worst feasible threat with which to sustain cooperation. In a population model, we introduce the Markov strategy and characterize neutrally stable equilibrium. We construct simple Markov strategies that achieve the highest discounted payoff at the origin among all subgame perfect equilibrium distributions that have either eternal cooperation or eternal (matched) alternation on their equilibrium paths. Partnerships past the first strangers’ phase never break up, and potential punishments are all performed within the partnership. With this feature, our optimal Markov equilibria prove to be neutrally stable, while many commonly known ones in the literature are not.

On Optimal Social Convention in Voluntary Continuation Prisoner's Dilemma Games

When the repeated prisoner’s dilemma setup is generalized to allow for a unilateral breakup, maximal efficiency in equilibrium remains an open question. With restrictions of simple symmetry with eternal mutual cooperation, defection, or (matched) alternation on the equilibrium path, we describe the upper limit of discounted lifetime payoff and construct simple social conventions that, for a large set of parameters, achieve it. While all other well-known equilibrium designs in the literature punish defections with a breakup and thus reach the optimum only in degenerate cases, exploited cooperators in ours allow defectors to compensate them by cooperating more in the future.

On Market Activity and the Value of Money

In a random-matching monetary economy, efficient and inefficient sellers choose between home or market production. Since inefficient sellers bargain up their prices, two equilibria may exist-with high or low market participation-depending on extent of heterogeneity and frictions. In equilibrium, the presence of inefficient sellers in the market has two opposing effects. It raises trading frequencies, so it lowers consumption risk, but it lowers the value of money, raising prices. This may reduce trading efficiency. Equilibria with full and limited participation can coexist; when average efficiency is high and agents are patient, limited participation is socially preferable.

Do separation rules matter? An experimental study of commitment

Coasian reasoning predicts that the conditions under which parties may terminate a partnership will affect bargaining between partners, but not the durability of partnerships. This paper endeavors to test both predictions in an experimental setting that allows agents to form and end partnerships endogenously and to bargain over resources. We find that separation rules have less effect on bargaining than predicted by theory, but larger effects on partnership stability. Perhaps surprisingly, agents who are weaker relative to their partners are more successful when either party can end a partnership unilaterally than when both must consent to a separation.