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Bargaining under ambiguity: some experimental evidence

Author

Listed:
  • Hammad Siddiqi

    (Lahore University of Management Sciences)

Abstract

This paper investigates the price behavior in an experimental market in which participants are only aware of their own private values and do not possess information about the demand and supply curves, hence face ambiguity. The paper finds that when demand is flatter (more elastic) than the supply curve in price-quantity space then price approaches equilibrium from below, that is, all trades initially occur below the equilibrium price. However, if demand is steeper (less elastic) than supply, then the equilibrium price is reached from above. A simple rationale for this result is that in the first round of trading, participants tend to split the surplus from trading evenly among themselves since they are unaware of the equilibrium price. However, in subsequent rounds price quickly converges to the equilibrium as the equilibrium is discovered through repeated interactions.

Suggested Citation

  • Hammad Siddiqi, 2006. "Bargaining under ambiguity: some experimental evidence," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-06d80002
    as

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    File URL: http://www.accessecon.com/pubs/EB/2006/Volume4/EB-06D80002A.pdf
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    References listed on IDEAS

    as
    1. Ritter, Jay R., 2003. "Investment banking and securities issuance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 5, pages 255-306, Elsevier.
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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D0 - Microeconomics - - General

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