An Experimental Investigation of the Alternating Double Auction Market

Abstract

Double auction markets have fascinated experimental economics researchers ever since Vernon SMITH reported his experiments in 1962. The fascination lies in the fact, that these markets exhibit an extremely high efficiency and a remarkable convergence to the market clearing price, although the underlying games are exceptionally complex. However, neither the abundant experimental nor the scarce game theoretic research on double auction markets, existing to date, has yet entirely clarified the process of price formation in these markets. The main goal of the investigation presented here, is to find regularities in the behavior of traders in experimental discriminatory price double auction markets, which might help explain the process of price formation.