Learning and market clearing: theory and experiments

Carlos Alós-Ferrer and Georg Kirchsteiger

Economic Theory, 2015, vol. 60, issue 2, 203-241

Abstract: This paper investigates theoretically and experimentally whether traders learn to use market-clearing trading institutions or whether other (inefficient) market institutions can survive in the long run. Using a framework with boundedly rational traders, we find that market-clearing institutions are always stable under a general class of learning dynamics. However, we show that there exist other, non-market-clearing institutions that are also stable. Therefore, in the long run, traders may fail to coordinate exclusively on market-clearing institutions. Using a replica-economies approach, we find the results to be robust to large market size. The theoretical predictions were confirmed in a series of platform choice experiments. Traders coordinated on platforms predicted to be stable, including market-clearing as well as non-market-clearing ones, while platforms predicted to be unstable were avoided in the long run. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Market institution; Market clearing; Coordination; Learning; C72; D4; D83 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s00199-015-0885-8

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