Mark Van Boening

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.

Dividend Timing and Behavior in Laboratory Asset Markets

Summary. This paper investigates the effect of dividend timing on price bubbles and endogenous expectations in twenty-six laboratory asset markets. In ten “A1” markets, a single dividend is paid at the end of the trading horizon. In nine “A2” markets, dividends are paid at the end of each trading period. In seven “A3” markets, some of the dividends are paid at the end of the trading horizon, and the rest are paid on a per-period basis. The results indicate that price bubbles are most likely in A2 markets, less likely in A3 markets, and least likely in A1 markets. Six distinct hypotheses are considered. The data suggest that the concentration of dividend value at a single point in time helps to create common expectations, and thus significantly reduce the incidence of bubbles. Also, the results underscore the difficulty facing econometric tests on field data where fundamental value has to be approximated.

The Use of Artificial Neural Networks for Estimation of Decision Surfaces in First Price Sealed Bid Auctions

Artificial neural networks, optimized using genetic algorithms, are used to estimate bid functions for first price sealed bid auctions. Data generated in experimental markets is used for two means of estimating the bid function. First, the neural network provides a best fit to the data, thus estimating the bid function that subjects were using. Alternative objective functions are used for the neural network to demonstrate the effect on the resultant bid function. Second, the neural network is optimized using profit maximization as the objective function to identify the optimal bid function given the bids of the experimental subjects.

Bargaining and Information: An Empirical Analysis of a Multistage Arbitration Game

We conduct an experimental analysis of final offer arbitration (FOA) with differentially informed players. Under FOA, the arbitrator must choose one of the two submitted offers. In our control, the uninformed player makes an offer to the informed player prior to the submission of offers to the arbitrator. The treatment allows negotiation after offers are submitted to the arbitrator. Because these offers are potentially binding, they may transmit privately held information and, thereby, lower the dispute rate. We find that allowing negotiation in the face of potentially binding offers lowers the dispute rate by 27 percentage points.

Numerical Computation of Equilibrium Bid Functions in a First-Price Auction with Heterogeneous Risk Attitudes

We use numerical methods to compute Nash equilibrium (NE) bid functions for four agents bidding in a first-price auction. Each bidder i is randomly assigned: ri ɛ [0, rmax], where 1 − ri is the Arrow-Pratt measure of constant relative risk aversion. Each ri is independently drawn from the cumulative distribution function Φ(ċ), a beta distribution on [0, rmax]. For various values of the maximum propensity to seek risk, rmax, the expected value of any bidders risk characteristic, E(ri), and the probability that any bidder is risk seeking, P(ri > 1), we determine the nonlinear characteristics of the (NE) bid functions. Copyright Kluwer Academic Publishers 1998

Can core allocations be achieved in avoidable fixed cost environments using two-part price competition?

Two environments are studied in which sellers have only avoidable fixed costs and fixed capacities: (a) in the first, the core exists and is supportable by a competitive equilibrium; (b) in the second, the core exists but there is no competitive equilibrium. In both cases, demand price is constant up to capacity. Experiments using the double auction institution fail to converge to 100% efficiency allocations in either environment. We study a new mechanism in which sellers each submit fixed vendors fees, which must be paid before units can be sold, as well as a price and corresponding maximum quantity. Buyers submit price-quantity bids. A computing center determines allocations that maximize the aggregate surplus subject to the price, quantity, and vendor fee constraints. We report 20 experiments: 5 inexperienced (45 periods) and 5 experienced (75 periods) subject groups in each of the designs (a) and (b). Buyers are simulated to be fully revealing. The same four sellers participate in both inexperienced and experienced sessions. We explain why this environment proves difficult in these experiments and what we intend to do about it in further iterations.

Fairness in an Embedded Ultimatum Game

Abstract We embed an ultimatum game in a stylized legal bargaining framework. This changes the framing of the standard ultimatum game in several ways but also moves the bargaining closer to what is found in some naturally occurring settings. In this context, the ultimatum game is played over the joint surplus, which is achieved from settlement rather than a dispute. In our embedded ultimatum game, the median offer contains only 8 percent of the joint surplus from settlement. When we replicate the simple ultimatum game, we find that 50 percent of the joint surplus is contained in the median offer.

Bargaining with Asymmetric Dispute Costs

We conduct a bargaining experiment in a stylized litigation setting. In the baseline, dispute costs are divided equally between the two parties. There are two treatments with an asymmetric distribution of dispute costs. The design allows us to gain insight into how a fair offer evolves with the distribution of dispute costs. The amount of surplus in the average offer depends on the total amount of surplus available and not on the distribution of dispute costs. About 28% of the total surplus is contained in the average offer, regardless of the distribution of dispute costs. Based on the empirical rejection frequencies, we calculate that the optimal offer contains 13% of the total surplus from settlement. We also find evidence that disputes are more likely when dispute costs are asymmetrically distributed. This suggests that the experimental subjects have more difficulty coordinating on a fair offer when dispute costs are not symmetric.

The Demographic Effects of Katrina: An Impact Analysis Perspective

This paper examines the effect of Hurricane Katrina on the populations of 79 ZIP code areas in Louisiana (55) and Mississippi (24) devastated by the hurricane. We compare pre-Katrina population projections for 2007 with post- Katrina projections for 2007 and 2010 and estimate that Katrina reduced the areas population by 311,150 people (21.2%) from the 1,464,280 expected in the absence of Katrina. We also find a striking difference between Louisiana and Missis- sippi. In the 55 Louisiana ZIP codes, the black population was reduced both absolutely and relatively more than the white population (loss of 150,032 blacks v. 107,845 whites, or 32.7% v. 19.8%). In contrast, the white population in the 24 Mis- sissippi ZIP codes was reduced both absolutely and relatively more than the black population (28,812 whites or 10.3% v. 5,003 blacks or 6.3%). Our analysis suggests that Katrinas demographic effects are profound, and may persist well be- yond the 2010 U.S. Census.

An Empirical Analysis of the Signaling and Screening Models of Litigation

We present an experimental analysis of the signaling and screening models of litigation. In both models, bargaining failure is driven by asymmetric information. The difference between the models lies in the bargaining structure: In the signaling game, the informed party makes the final offer, while in the screening game the uninformed party makes the final offer. We conduct experiments for both models under a common set of parameter values, allowing only the identity of the party making the final offer to change. We find the anomalous behavior to be more common in the signaling game, but the frequency of this behavior diminishes in the later rounds of the experiment. Across both games, in the later rounds of the experiment over 90% of offers are consistent with the theory. Having the right to make the offer raises a player’s expected payoffs, but by much less than is predicted by theory. Dispute rates across the two games are approximately equal.