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An Experimental Examination of the Walrasian Tatonnement Mechanism

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  • Bronfman, Corinne
  • McCabe, Kevin
  • Porter, David
  • Rassenti, Stephen
  • Smith, Vernon

Abstract

This is a systematic experimental comparison of the efficiency and competitive properties of a computerized multiunit tatonnement with or without a dynamic improvement rule, with or without publicity of order flow information. All versions of the tatonnement are comparatively less efficient than the continuous double auction. The tatonnement yields competitive prices, but both sides tend to underreveal demand/supply, causing inefficiency. Only the full-information, no-improvement-rule version of the tatonnement procedure approaches the efficiency of the double auction.
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Suggested Citation

  • Bronfman, Corinne & McCabe, Kevin & Porter, David & Rassenti, Stephen & Smith, Vernon, 1992. "An Experimental Examination of the Walrasian Tatonnement Mechanism," Working Papers 824, California Institute of Technology, Division of the Humanities and Social Sciences.
    • Handle: RePEc:clt:sswopa:824
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    Cited by:

    1. Rajkamal Iyer & Asim Ijaz Khwaja & Erzo F. P. Luttmer & Kelly Shue, 2016. "Screening Peers Softly: Inferring the Quality of Small Borrowers," Management Science, INFORMS, vol. 62(6), pages 1554-1577, June.
    2. Sean Crockett, 2013. "Price Dynamics In General Equilibrium Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 421-438, July.
    3. Eaves, James & Williams, Jeffrey & Power, Gabriel J., 2016. "Do traders strategically time their pledges during real-world Walrasian auctions?," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 109-118.
    4. Abel M. Winn & Michael L. Parente & David Porter, 2016. "Seller Beware: Supply and Demand Reduction and Price Manipulation in Multiple‐Unit Uniform Price Auctions," Southern Economic Journal, John Wiley & Sons, vol. 82(3), pages 760-780, January.
    5. Pouget, Sebastien, 2007. "Financial market design and bounded rationality: An experiment," Journal of Financial Markets, Elsevier, vol. 10(3), pages 287-317, August.
    6. Vernon L. Smith, 2020. "Causal versus Consequential Motives in Mental Models of Agent Social and Economic Action: Experiments, and the Neoclassical Diversion in Economics," Kyklos, Wiley Blackwell, vol. 73(3), pages 341-370, August.
    7. Athreya, Kartik B., 2014. "Big Ideas in Macroeconomics: A Nontechnical View," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262019736, April.
    8. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, August.
    9. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.

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