Working paper

Equilibrium Discovery and Preopening Mechanisms in an Experimental Market

Bruno Biais, Christophe Bisière, and Sébastien Pouget

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.

Replaced by

Bruno Biais, Christophe Bisière, and Sébastien Pouget, Equilibrium Discovery and Preopening Mechanisms in an Experimental Market, Management Science, vol. 60, n. 3, March 2014.

See also

Published in

TSE Working Paper, n. 09-001, January 2009