You may want to read these instructions completely, and then "reload" this page to begin a new experiment.
You will either be a Buyer (with a Buyer Value) or a Seller (with a Seller Cost). This information is available in the lower-right side of the display. You will be allowed to make only a single transaction during a given market session.
If you are a buyer, your Buyer Value gives you the value you will receive if you purchase a good on the market (in essence, it tells you how much the good is worth to you). Thus, if your buyer value is 80 and you purchase a good for 73, then you will have earned a profit of 7. If you do not purchase a good, you will receive a profit of 0.
If you are a seller, your Seller Cost gives you the cost you must pay if you sell a good on the market. (You can think of this as your cost to produce the good.) Thus, if your seller cost is 65 and you sell a good for 73, then you will have earned a profit of 8. If you do not sell a good, you will receive a profit of 0.
To make an offer in the market go to the lower-right side of the display, and use your mouse to click on the open circle by the value you wish to offer (black circles indicate offers that either are not allowed or would cause you to lose money). Remember, try and buy at low prices and sell at high prices!
In the data displays, your information (e.g., transaction, values, etc.) is indicated by darkened squares.
.....Good luck!
Each player in the experiment is controlled by a simple adaptive algorithm that uses both the player's Buyer Value (or Seller Cost) and some information that is available to everyone in the market to create new offers. Please note that, like you, these players only know their own information, and the information that is being displayed at the time. (Thus, for example, they do not know the form of the supply and demand curves, etc.)
Q: How do the players take turns?
Buyers and sellers are randomly chosen to make offers to buy and sell.
Q: What is the graph that gets displayed at the end of the trading session?
This graph gives the supply curve (in red) and demand curve (in blue) for the market based on the Buyer Values and Supply Costs (displayed in the upper-left) of all of the players in the market. The time series of actual trade prices is given by the magenta line (the square on this line indicates your trade, if any).
Q: What do "Basic Market Statistics" tell me?
The basic market statistics (displayed at the end of the session in the upper-right panel) provide a variety of information.
Q: What am I suppose to learn from all of this?
There are a variety of important lessons one can learn from this experiment.
First, it shows how a simple market operates. Markets similar to this one are responsible for allowing the exchange of an enormous amount of the world's goods and services (in fact, almost all goods and services available have been traded at one time or another by similar markets).
Second, it demonstrates how a simple market allows a decentralized group to effectively exchange goods: there was no central authority regulating who could trade with whom, very little information was being transmitted (only the bids and asks of the various players), and each player was trying to do the best they could in the market, without being forced to trade. Also, note that the transaction prices were not dictated, but simply emerged from the actions of the individual players. Given these conditions it is always surprising that the market is able to get most of the gains from trade (maximum profit) from the players (how high was your market's efficiency?).
Finally, it shows how competitive equilibrium theory can accurately predict the outcome of such markets. For most of these markets, the competitive equilibrium theory does very well at predicting the observed data. (If you look at the graph, the magenta line typically heads for the intersection of the supply and demand curves.) Again, it is remarkable that in a world in which individual players have so little information and no central authority is around to impose prices or trades on the players, that, nonetheless, the simple actions of the players create an aggregate behavior that looks as if the players knew the actual supply and demand conditions ahead of time.
Q: This stuff is great! I would like to learn more about the science behind all of this, what should I do?
We have developed a book that develops these ideas using similar experiments to the one here. If you want to learn more, check out Experiments with Economic Principles.
Q: Something funny happens when I do X, why?
Hmmmm....send email to miller@zia.hss.cmu.edu, and I will look into it.