Equilibrium Discovery and Preopening Mechanisms in an Experimental Market

Bruno Biais, Christophe Bisière and Sébastien Pouget

No 09-001, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We experimentally analyze equilibrium discovery in i) a pure call auction, ii) a call auction preceded by a nonbinding preopening period, and iii) a call auction preceded by a binding preopening period. We examine whether a preopening period can facilitate coordination on the Pareto dominant equilibrium. During the nonbinding preopening period, traders tend to place manipulative orders. After observing such orders, participants learn to distrust cheap talk and coordinate less on Pareto dominant outcomes. In contrast, we find that, when preopening orders are binding, they improve the ability to coordinate on high gains from trade.

Date: 2009-01
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Related works:
Journal Article: Equilibrium Discovery and Preopening Mechanisms in an Experimental Market (2014)
Working Paper: Equilibrium Discovery and Preopening Mechanisms in an Experimental Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:21924

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