Shachat, Jason and Zhang, Zhenxuan (2012): The Hayek hypothesis and long run competitive equilibrium: an experimental investigation.
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We report on an experiment investigating whether the Hayak Hypothesis (Smith, 1982) extends to the long run setting. We consider two environments; one with a common production technology having a U-shaped long run average cost curve and a single competitive equilibrium, and another with a common constant returns to scale technology having a constant long run average cost curve and multiple competitive equilibria. While there is convergence in both environments to the long run equilibrium, it takes longer and is less robust than usually observed in the short run setting. We show that price formation is adaptive and quickly converges to realized short run equilibrium, but long run investment decisions exhibit very limited rationality. We present and estimate an investment choice model that shows that only minimal rationality, coupled with repeated decisions, is enough to achieve high long run allocative efficiency when markets use continuous double auctions.
|Item Type:||MPRA Paper|
|Original Title:||The Hayek hypothesis and long run competitive equilibrium: an experimental investigation|
|Keywords:||Experiment; Double Auction; Hayek Hypothesis; Long Run Equilibrium; Bounded Rationality|
|Subjects:||C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D41 - Perfect Competition
D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles
|Depositing User:||Jason Shachat|
|Date Deposited:||20. Jun 2012 22:08|
|Last Modified:||04. Sep 2015 09:05|
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