Abstract
Publisher Summary The experimental evidence from three prominent auction trading institutions: (1) the continuous double auction, (2) the uniform-price sealed bid-offer auction, and (3) the uniform-price double auction (with continuous feedback of real time information on the acceptance status of bids and offers), shows that subjects are able to work out a behavioral equilibrium which is strategy-proof. In institutions (2) and (3) this is achieved by a groping process which (a) approximates the competitive equilibrium, and (b) produces a large number of bids and offers that are tied, or nearly tied. Impossibility theorems provide important insight as to why the above two-sided mechanisms have difficulty achieving perfection, but they do not address the question as to why such field mechanisms, when studied in the laboratory, perform so well – in fact surprisingly well given the theorems and the fact that we observe massive underrevelation in the experiments.
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