Nilanjan Roy

Abstract: This paper presents experimental evidence concerned with behavior in Cournot duopolies where players indulge in a form of pre-play communication termed as revision phase before playing the ''one-shot'' game. During this revision phase individuals announce their tentative quantities that are publicly observed and revisions are costless. The payoffs are determined only by the quantities selected at the end in a real time revision game while in a Poisson revision game, opportunities to revise arrive according to a synchronous Poisson process and the tentative quantity corresponding to the last revision opportunity are implemented. Contrasting results emerge. While real time revision of quantities results in choices that are more competitive than the static Cournot-Nash, significantly lower quantities are implemented in the Poisson revision games. This shows that partial cooperation can be sustained even when individuals interact only once. The dynamics of revisions gives rise to the following two observations. First, while a real time revision game is characterized only by late upward quantity adjustments, the Poisson revision games are characterized primarily by initial downward adjustments and sometimes also by the late upward revisions. Second, the quantity adjustments during the initial period of the revision phase show that individuals imitate their opponent's desired quantity choices, whereas, behavior towards the end of the revision phase can be explained by the best response to the competitor's desired output.

Abstract: For over thirty years, the model of Lucas (1978) has been the platform of research on dynamic asset pricing and business cycles. This model restricts the intertemporal behavior of asset prices and ties those restrictions to cross-sectional behavior (the "equity premium"). The intertemporal restrictions reject the strictest interpretation of the Efficient Markets Hypothesis, namely, that prices should follow a martingale. Instead, prices move with economic fundamentals, and to the extent that these fundamentals are predictable, prices should be too. The Lucas model also prescribes the investment choices that facilitate smoothing of consumption over time and across different types of investors. Here, we report results from experiments designed to test the primitives of the model. Our design overcomes, in novel ways, challenges to generate demand for consumption smoothing in the lab, and to induce stationarity in spite of the finite duration of lab experiments. The experimental results confirm the theoretical price predictions across assets with different risk characteristics, but prices are much more volatile, reacting less to fundamentals than predicted. Investment choices are, in turn, consistent with the excessive volatility. Nevertheless, consumption smoothing (over time and across investor types) largely obtains as predicted.

Abstract: Prices and quantities converge to the theoretical competitive equilibria in continuous, double auction markets. The double auction is not a tatonnement mechanism. Disequilibrium trades take place. The absence of any influence of disequilibrium trades, which have the capacity to change the theoretical equilibrium, appears to be due to a property found in the Marshallian model of single market adjustments. The Marshallian model incorporates a principle of self-organizing, coordination that mysteriously determines the sequence in which specific pairs of agents trade in an environment in which market identities and agent preferences are not public. Disequilibrium trades along the Marshallian path of trades do not change the theoretical equilibrium. The substance of this paper is to demonstrate that the Marshallian principle captures a natural tendency of the adjustment in single, continuous, double auction markets and to suggest how it takes place. The Marshallian model of quantity adjustment and the Walrasian model of market price adjustment can be seen as companion theories that explain the allocation and price processes of a market. The Marshallian model explains the evolution of the allocation, who will meet and trade, and the Walrasian excess demand explains the evolution of prices when they do.