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The bubble and burst pattern in asset market experiments is among the most replicable results in experimental economics. Numerous studies have searched for means to reduce this mispricing. Using controlled laboratory experiments, we compare mispricing in standard double auction markets to prices in two clock auctions. The double Dutch auction, shown to be more efficient than the double auction in commodity market experiments, does not eliminate bubbles. However, the English Dutch auction does yield prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in the common declining fundamental value environment.
From:
Cary Deck
The University of Alabama and Chapman University
Maroš Servátka
MGSM Experimental Economics Laboratory, Macquarie Graduate School of Management and University of Economics in Bratislava
Steven Tucker
The University of Waikato
The bubble and burst pattern in asset market experiments is among the most replicable results in experimental economics. Numerous studies have searched for means to reduce this mispricing. Using controlled laboratory experiments, we compare mispricing in standard double auction markets to prices in two clock auctions. The double Dutch auction, shown to be more efficient than the double auction in commodity market experiments, does not eliminate bubbles. However, the English Dutch auction does yield prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in the common declining fundamental value environment.
From:
Cary Deck
The University of Alabama and Chapman University
Maroš Servátka
MGSM Experimental Economics Laboratory, Macquarie Graduate School of Management and University of Economics in Bratislava
Steven Tucker
The University of Waikato