Ryan Oprea

Separating the Hawks from the Doves: Evidence from continuous time laboratory games

Human players in our laboratory experiment received flow payoffs over 120 seconds each period from a standard Hawk-Dove bimatrix game played in continuous time. Play converged closely to the symmetric mixed Nash equilibrium under a one-population matching protocol. When the same players were matched in a two-population protocol with the same bimatrix, they showed clear movement towards an asymmetric (and very inequitable) pure Nash equilibrium of the game. These findings support distinctive predictions of evolutionary game theory.

A Manipulator Can Aid Prediction Market Accuracy

Prediction markets are low volume speculative markets whose prices offer informative forecasts on particular policy topics. Observers worry that traders may attempt to mislead decision makers by manipulating prices. We adapt a Kyle-style market microstructure model to this case, adding a manipulator with an additional quadratic preference regarding the price. In this model, when other traders are uncertain about the manipulators target price, the mean target price has no effect on prices, and raising the variance of the target price can increase average price accuracy, by boosting the returns to informed trading and thereby incentives for traders to become informed.

War of Attrition: Evidence from a Laboratory Experiment on Market Exit

We report an experiment designed to study whether inecient rms are systematically driven from overcrowded markets. We implement a series of 3800 wars of attrition of a type modeled in Fudenberg and Tirole (1986). Exit tends to be ecient and exit times conform reasonably well to point predictions of the model. Moreover, we nd that subjects respond similarly to implementations framed in terms of losses as they do to those framed in terms of gains.

Extreme Walrasian Dynamics: The Gale Example in the Lab

We study David Gales (1963) economy using laboratory markets. Tatonnement theory predicts prices will diverge from an equitable interior equilibrium toward infinity or zero depending only on initial prices. The inequitable equilibria determined by these dynamics give all gains from exchange to one side of the market. We show surprisingly strong support for these predictions. In most sessions one side of the market eventually outgains the other by more than 20 times, leaving the disadvantaged side to trade for mere pennies. We also find preliminary evidence that these dynamics are sticky, resisting exogenous interventions designed to reverse their trajectories. (JEL C92, D50)

From imitation to collusion: Long-run learning in a low-information environment

We explore the stability of imitation in a 1,200-period experimental Cournot game where subjects do not know the payoff function but see the output quantities and payoffs of each oligopolist after every period. In line with theoretical predictions and previous experimental findings, our oligopolies reach highly competitive levels within 50 periods. However, already after 100 periods quantities start to drop and, eventually fall deep into collusive territory without pausing at the Nash equilibrium. Our results demonstrate how groups of subjects can learn their way out of dysfunctional heuristics, and thus suggest the need for a new theory of how cooperation emerges.

Survival versus profit maximization in a dynamic stochastic experiment

Subjects in a laboratory experiment withdraw earnings from a cash reserve evolving according to an arithmetic Brownian motion in near‐continuous time. Aggressive withdrawal policies expose subjects to risk of bankruptcy, but the policy that maximizes expected earnings need not maximize the odds of survival. When profit maximization is consistent with high rates of survival (HS parameters), subjects adjust decisively towards the optimum. When survival and profit maximization are sharply at odds (LS parameters), subjects persistently (and sub‐optimally) hoard excess cash in an evident effort to improve survival rates. The design ensures that this hoarding is not due to standard risk aversion. Analysis of period‐to‐period adjustments in strategies suggests instead that hoarding is due to a widespread bias towards survival in the subject population. Robustness treatments varying feedback, parameters, and framing fail to eliminate the bias.

Are biased beliefs fit to survive? An experimental test of the market selection hypothesis

Abstract We experimentally study the “market selection hypothesis,” the classical claim that competitive markets bankrupt traders with biased beliefs, allowing unbiased competitors to survive. Prior theoretical work suggests the hypothesis can fail if biased traders over-invest in the market relative to their less biased competitors. Subjects in our experiment divide wealth between consumption and a pair of securities whose values are linked to a difficult reasoning problem. While most subjects in our main treatment form severely biased beliefs and systematically over-consume, the minority who form unbiased beliefs consume at near-optimal levels – an association that strongly supports the market selection hypothesis.