First time guide for running the double auction: further advice and suggestions
- For debriefing it is preferable to first show and discuss the pattern of bids, asks, and trades.
- Only then the demand and supply curves should be revealed, layered over the trading data. If all socially desirable trades are executed (and no trades beyond the equilibrium quantity are made) total consumer plus producer surplus will be maximized and "efficiency" is close to 100 per cent.
- Distribution effects do not affect total surplus so even if a team mistakenly trades at a loss that by itself does not decrease total efficiency because the other team gains the extra surplus.
- The key point is that total efficiency for society is a function of making all potentially welfare improving trades, no more or less, the precise distribution of the gains does not affect the total efficiency score for society.
- Only run the price control version if students have completed the no controls version. The total efficiency number will fall. Explain that potentially profitable trades were prohibited, which is why price controls reduce efficiency.
- The JPE 1962 paper by Vernon Smith describing the original double auction classroom experiment conducted at Purdue University in the 1950s is freely available from the academic paper repository Researchgate. The first diagram in the paper shows Purdue students from the 1950s trading in the exact same manner as 21st century students - i.e. there is a period of "price discovery" and trades approach the predicted equlibrium.
- The American Economic Association has a page with links to more classroom experiments and information about how to use them