expectationally driven market volatility an experimental study abstract we study the existence and robustness of expectationally driven price volatility in experimental overlapping generation economies in the theoretical model under study there exist pure sunspot equilibria which can be learned if agents use some adaptive learning rules our data show the existence of expectationally driven cycles but only after subjects have been exposed to a sequence of real shocks and learned a real cycle in this sense we show evidence of path dependent price volatility journal of economic literature classification numbers c62 c92 f17 e32 e44

institutions and legacies electoral volatility in the postcommunist world the postcommunist states of eastern europe and the former soviet union have witnessed levels of electoral volatility higher than both western europe and latin america levels that have deleterious

information and efficiency goal arrival in soccer betting an efficient market incorporates news into prices immediately and fully tests for efficiency in financial markets have been undermined by information leakage we test for efficiency in sports betting markets real world markets where news breaks remarkably cleanly applying a novel identification to high frequency data we investigate the reaction of prices to goals scored on the cusp of half time this strategy allows us to separate the market s response to major news a goal from its reaction to the continual flow of minor game time news on our evidence prices update swiftly and fully

the effect of fast trading on price discovery and efficiency evidence from a betting exchange abstract we examine how the presence of fast traders impacts price discovery and efficiency in a real world setting i e courtsiding the activity of live betting from a tennis stadium this setting allows us to isolate the activity of fast acting traders who have a short term monopolistic access to important information with respect to other traders who trade based on delayed tv images using live tennis betting data combined with detailed point by point match data our results show that courtsider trading promotes quick price discovery and correctly incorporates new information into prices we estimate that a simple trading strategy yields a positive trading return to fast traders after the occurrence of important informational events

the role of markets in reducing expected utility violations market theorists assume that expected utility predicts preferences at the market level even as evidence mounts that it predicts poorly at the individual level the arguments for better performing markets are grounded in the assumption that individuals respond to the competition of the market the objective of this study is to test empirically the validity of those assumptions using the betweenness property of expected utility i conclude that expected utility does indeed predict better in markets but analyses suggest that improved performance may be due to the statistical role played by markets introduced by market price selection rules

geographic diffusion and the transformation of the postcommunist world since the collapse of communism the states of postcommunist europe and asia have defined for themselves and have had defined for them two primary tasks the construction of viable market economies and the establishment of working institutions of representative democracy the variation in political and economic outcomes in the postcommunist space makes it without question the most diverse region in the world what explains the variation all of the big winners of postcommunism share the trait of being geographically close to the former border of the noncommunist world even controlling for cultural differences historical legacies and paths of extrication the spatial effect remains consistent and strong across the universe of postcommunist cases this suggests the spatially dependent nature of the diffusion of norms resources and institutions that are necessary to the construction of political democracies and market economies in the postcommunist era the authors develop and adduce evidence for the spatial dependence hypothesis test it against rival hypotheses and illustrate the relationships at work through three theoretically important case studies

economic reforms and democracy evidence of a j curve in latin america this article explores the relationship between economic reforms and democracy in latin america between 1970 and 1995 existing theories suggest divergent effects across time horizons the implementation of reforms economic liberalization may initially destabilize democracy due to popular backlash or overzealous reformers usurpation of democratic institutions however the potential outcome of reforms greater economic liberalism may later foster or reinforce democracy by dispersing economic assets making rulers more susceptible to international constraints or demobilizing social groups that may otherwise make politically destabilizing redistributive demands time series cross section analyses using an error correction model provide evidence of this j curve relationship although countries engaging in economic reforms may experience a temporary deterioration of democracy they tend to become more democratic in the long run findings are robust to numerous control variables country and time fixed effec

patterns of transition from plan to market patterns of transition from plan to market martha de melo cevdet denizer and alan gelb hungary s bankruptcy experience 1992 1993 cheryl w gray sabine schlorke and miklos szanyi why and when do governments initiate public enterprise reform jose edgardo campos and hadi salehi esfahani roads land use and deforestation a spatial model applied to belize kenneth m chomitz and david a gray industrial centralization in indonesia j vernon henderson and ari kuncoro guidlines on searching for a dalton improving tax reform an illustration with data from indonesia shlomo yitzhaki and jeffrey d lewis a new data set measuring income inequality klaus deininger and lyn squire

a strategy experiment in dynamic asset pricing this study presents a strategy experiment in a simple dynamic asset pricing model where the current market equilibrium asset price is determined by aggregated individual expectations of next period s price after participating in an introductory laboratory experiment on expectation formation participants formulate a complete forecasting strategy these strategies are programmed and markets are simulated participants receive feedback from the results of these simulations and can adapt their strategy four rounds are played and the entire experiment lasts eight weeks a final laboratory experiment compares predictions of participants with the predictions of the submitted strategy we find that most of the participants submit complicated strategies and that strategies become more complicated over the rounds most markets converge to a steady state price only after many periods if at all the number of converging price sequences increases over the rounds these results suggest in general slow convergence and learning of the subjects over the rounds even in a stationary environment learning the correct fundamental price level turns out to be difficult an important part of the non convergence seems to be caused not by individual strategies but by the interaction of several strategies from the final experiment we conclude that the strategies are a good representation of what participants do in a laboratory experiment

price controls and the behavior of auction markets an experimental examination price ceilings and price floors are common in all market systems the ancient greeks and hellenistic era egyptians are known to have utilized price controls see h michele p 272 and j p levy p 41 and numerous public policy questions today involve them apparently for as long as price controls have existed their effects have been debated for example diocletion s favorable view of his price ceilings was disputed by the religious philosopher lactantius who charged that the policy led to scarcity and low grade articles p 145

ties to the rest autocratic linkages and regime survival the relationship between international linkages and the nature and survival of political regimes has gained increasing attention in recent years but remains one that is poorly understood in this article we make three central contributions to our understanding of international linkage politics and autocratic regime survival first we introduce and develop the concept of autocratic linkage and highlight its importance for understanding the international politics of autocratic survival second we use event history analysis to demonstrate that autocratic linkage has a systematic effect on the duration of authoritarian regimes finally we complement our quantitative analysis with a focused comparison of autocratic linkage politics in the middle east we show that variation in saudi arabian support for autocratic incumbents in the wake of the arab spring protests can be explained in significant part by variation in linkage relationships

evolution and market competition abstract profit maximization is the usual prerequisite for achievement of a perfectly competitive equilibrium however for a long time it has been though that this principle of profit maximization can be replaced by natural selection in an evolutionary model of an industry where firms outputs are chosen randomly where entry occurs with no motivation and where exit occurs when a firm s wealth becomes negative this paper shows that the industry converges in probability to a perfectly competitive equilibrium as each firm gets infinitesimally small relative to the market as the entry cost gets sufficiently small and as time gets sufficiently large journal of economic literature classification numbers d21 d41 l10

an introduction to field experiments in economics this special issue highlights an empirical approach that has increasingly grown in prominence in the last decade field experiments while field experiments can be used quite generally in economics to test theories predictions to measure key parameters and to provide insights into the generalizability of empirical results this special issue focuses on using field experiments to explore questions within the economics of charity the issue contains six distinct field experimental studies that investigate various aspects associated with the economics of charitable giving the issue also includes a fitting tribute to one of the earliest experimenters to depart from traditional lab methods peter bohm who curiously has not received deep credit or broad acclaim hopefully this issue will begin to rectify this oversight this abstract was borrowed from another version of this item

democratization and economic liberalization in the postcommunist world how does economic liberalization affect political regime economic liberalization is widely regarded as inimical to democratization the washington consensus which generally endorses shock therapy and envisions a basic compatibility between economic liberalization and democratization is widely disdained in social science many scholars hold that neoliberal economics depresses popular living standards and exacerbates socioeconomic inequalities thereby compromising democratization focusing on the postcommunist region this article tests this hypothesis it examines the data that have been used to assess the relationship between economic liberalization and political democratization and presents analyses using more appropriate and differentiated techniques the authors find that economic liberalization advances rather than undermines democratization using engle granger analysis they find that although economic liberalization has no discernible impact on democratization in the short term democratiza

price formation in single call markets this paper reports a laboratory experiment designed to examine the price formation process in a simple market institution the single call market the experiment features random values and costs each period so each period generates a new price formation observation other design features are intended to enhance the predictive power of the bayesian nash equilibrium bne theory developed recently for this trading institution we find that the data support several qualitative implications of the bne but that subjects bid and ask behavior is not as responsive to changes in the pricing rule as the bne predictions bids and asks tend to reveal more of the underlying values and costs than predicted particularly when subjects are experienced nevertheless observed trading efficiency falls below the bne prediction the results offer more support for the bne when subjects compete against nash robot opponents a simple learning model accounts for several of the deviations from bne

price formation in double auction markets abstract this paper reports 14 laboratory experiments that examine existing theories of the price formation process in the continuous double auction the experiments feature random values and costs and therefore a new price formation observation each period we find that efficiency is high and rises with experience in this environment we also find that trades with greater exchange surplus tend to occur earlier in the period that increased trader experience reduces an anomalous intertemporal arbitrage opportunity observed previously and that only when traders are very experienced does exchange surplus accrue disproportionately to the side of the market with a smaller number of traders

how the equity market responds to unanticipated events we examine the market reaction of prices volume spreads and trading location when firms experience events that are totally unanticipated by the equity market in terms of both timing and content we find that the response time is longer than previous studies have reported selling pressure wider spreads and higher volume remain significant for over an hour we also find an immediate price reaction for overnight events however the market takes longer to react to events that occur when it is open these findings may shed light on the efficacy of trading halts

the role of surprise understanding overreaction and underreaction to unanticipated events using in play soccer betting market abstract previous research in finance has found evidences of both overreaction and underreaction to unanticipated events but has yet to explain why investors overreact to certain events while underreacting to others in this paper we hypothesize that while market participants generally underreact to new events due to conservatism the extent of underreaction is moderated by surprise thus causing market participants to overreact to events that are highly surprising we test our hypothesis using data from an in play soccer betting market where new events goals are clearly and exogenously defined and the degree of surprise can be directly quantified goals scored by underdogs are more surprising we provide both statistical and economic evidences in support of our hypothesis

suckers are born but markets are made individual rationality arbitrage and market efficiency on an electronic futures market the iowa electronic markets are specially designed futures markets that appear to aggregate information efficiently to predict events such as election outcomes yet in theory perfect information aggregation is impossible further the markets are populated by a nonrepresentative sample of mistake prone and biased traders that is traders are prone to the behavioral anomalies predicted by behavioral finance how can this be reconciled with market efficiency here we take a first step by analyzing the behavior of two self selected types of traders dramatic differences in mistake rates across traders can help us answer the question market making traders who set prices are less mistake prone and appear to be more rational than price taking traders this highlights an important feature of markets marginal in this case market making not average traders set prices this can drive the efficiency of market prices in spite of large numbers of traders who display patently suboptimal behavior

the degree of inefficiency in the football betting market statistical tests abstract this paper tests the hypothesis that the football betting market is efficient our statistical tests are stronger than those in previous studies and we examine both nfl and college data over a sample period of fifteen years our statistical tests detect two specific biases in the nfl market and an unspecified bias in the college market we examine the year to year consistency and magnitudes of the biases and find that the nfl bias against home teams has been nearly eliminated while the bias against underdogs has increased profitable exploitation of the biases depends upon transaction costs

double auction dynamics structural effects of non binding price controls in competitive equilibrium non binding price controls that is price floors below and ceilings above the equilibrium should not affect market outcomes but in laboratory experiments they do we build a simple dynamic model of double auction markets with zero intelligence zi computer traders that accounts for many though not all of the discrepancies between the data and the walrasian tatonnement predictions the success of the model in organizing the data and in isolating various consequences of price controls shows that the simple zi model is a powerful tool to gain insights into the dynamics of market institutions

beyond microfoundations towards a not too rational macroeconomics at ucla we are establishing a center for computable economics i have been very much involved in this effort this may surprise you that a non mathematical macro monetary economist should become an enthusiast for this project is one of those things that do not compute but then as i will explain we take a special interest in things that do not compute one may come to computable economics by many intellectual routes i will trace my own not because it makes a particularly edifying story but because it will tell you what kind of problems i hope we can make progress on by developing the field of computable economics but before we get to that i had better explain what i mean by computable economics

the pitch rather than the pit investor inattention trading activity and fifa world cup matches this paper analyzes stock market trading in 15 countries during the 2010 and 2014 soccer fifa world cups we find evidence for substantial investor inattention during these major sporting events the lack of attention for the trading pit is particularly large when the national soccer team is competing with traded volumes declining by as much as 48 during national team matches prices on local stock markets can temporarily decouple from global financial market developments these findings suggest that major sporting events can act as a laboratory in which to investigate investor inattention

comparative democracy the economic development thesis in comparative politics an established finding that economic development fosters democratic performance has recently come under challenge we counter this challenge with a dynamic pooled time series analysis of a major but neglected data set from 131 nations the final generalized least squares autoregressive moving averages estimates n 2 096 appear robust and indicate strong economic development effects dependent in part on the nation s position in the world system for the first time rather hard evidence is offered on the causal relationship between economics and democracy according to granger tests economic development causes democracy but democracy does not cause economic development overall the various tests would seem to advance sharply the modeling of democratic performance

price formation in double auctions abstract we develop a model of information processing and strategy choice for participants in a double auction sellers in this model form beliefs that an offer will be accepted by some buyer similarly buyers form beliefs that a bid will be accepted these beliefs are formed on the basis of observed market data including frequencies of asks bids accepted asks and accepted bids then traders choose an action that maximizes their own expected surplus the trading activity resulting from these beliefs and strategies is sufficient to achieve transaction prices at competitive equilibrium and complete market efficiency after several periods of trading journal of economic literatureclassification numbers d41 d44 d8

the political foundations of post communist regimes marketization agrarian legacies or international influences this article explores the causes of differing post communist regime transitions in eastern europe and the former soviet union emphasizing the increasingly prominent thesis that economic liberalization promotes political democratization we explore this argument in light of findings from other regions that have emphasized modernization agrarian class structure and international influences our results are based on a multilevel design strategy first analyzing data on 26 post communist countries over a 7 to 9 year period using time series cross sectional methods and then turning to a comparative analysis of four purposively selected cases to explore the causal mechanisms implied but not tested in the quantitative analysis our results suggest that faith in economic liberalization as a cause of democratization may be misplaced however there is support for the notion that large agrarian sectors are unfavorable to democratic development whereas positive democratic conditionality from outside agents can p

the market impact of trends and sequences in performance new evidence bloomfield and hales 2002 find strong evidence that experimental market subjects are influenced by trends and patterns in a manner supportive of the shifting regimes model of barberis shleifer and vishny 1998 we subject the model to further empirical scrutiny using the football wagering market as our price laboratory sports betting markets have several advantages over traditional capital markets as an empirical setting and commonalities with traditional markets allow for useful insights we find scant evidence that investors behave in accordance with the model barberis s hleifer and vishny 1998 develop a model of investor sentiment that is consistent with two pervasive empirical anomalies that have been the focus of much research in finance momentum in returns and reversals in returns 1 the model is motivated by evidence documented by cognitive psychologists on two systematic biases that arise when people form beliefs namely conservatism and representativeness 2 these biases are captured in a regimeshifting framework in which the earnings process follows a random walk but investors hold the flawed belief that the process switches between a reversal regime in which earnings changes tend to reverse themselves in sign and a continuation regime in which earnings changes are followed by changes of the same sign a key feature of the model is that investors look at the frequency of past performance reversals to determine which regime currently governs performance a recent paper by bloomfield and hales 2002 reports results of laboratory experiments with mba student participants which support the existence of

why no backsliding the european union s impact on democracy and governance before and after accession this article documents and explains the puzzling lack of backsliding in political reforms among the new postcommunist eu members even though these countries are no longer subject to the powerful incentives of the eu membership promise using a combination of cross national statistics expert interviews and public opinion data the authors show that the new eu members have experienced at most a slowdown in reforms rather than a genuine backlash the authors attribute this finding to the fact that the loss of leverage after the countries joined the european union was balanced by a combination of alternative leverage and linkage mechanisms including greater dependence on eu aid and trade and greater exposure to the west for both elites and ordinary citizens for the latter expanded work and travel opportunities seem to be associated with higher expectations of government performance and greater political involvement which may be crucial for future governance reform in the region

allocative efficiency of markets with zero intelligence traders market as a partial substitute for individual rationality we report market experiments in which human traders are replaced by zero intelligence programs that submit random bids and offers imposing a budget constraint i e not permitting traders to sell below their costs or buy above their values is sufficient to raise the allocative efficiency of these auctions close to 100 percent allocative efficiency of a double auction derives largely from its structure independent of traders motivation intelligence or learning adam smith s invisible hand may be more powerful than some may have thought it can generate aggregate rationality not only from individual rationality but also from individual irrationality

bayesian equilibrium in double auctions populated by biased heuristic traders abstract we use computer simulation to examine three asset markets with imperfect information in processing imperfect information traders in the three markets are bayesian empirical bayesian and heuristic representativeness and anchor and adjust respectively all three converge to the same bayesian equilibrium although the latter two converge more slowly without profit maximization natural selection arbitrage or mutual cancellation of random actions the results support becker 1962 and simon 1973 in that the rationality of the market emerges as a consequence of the market structure and not from the rationality of individuals

papers in experimental economics on nonbinding price controls in a competitive market interest in the effect of nonbinding price controls on double auction markets stems from two primary considerations the double auction institution converges to a competitive allocation more rapidly and with fewer participating agents than any other institution with which it has been compared see smith et al one way to improve our understanding of this important property is to determine what conditions if any can interfere with or retard this convergence process nonbinding price controls represent a condition that may affect this convergence process hence if such effects can be documented they will provide a body of data that any future proposed model of the double auction process should be able to explain a second reason for studying the effect of nonbinding controls on the double auction is practical the organized commodity exchanges often set limits on price fluctuations during any single day when prices at any point during a day rise above qr fall below the closing prices of the preceding day by more than the amount of the limit no further trading for that day is permitted walter labys p 162 consequently commodity trading frequently occurs at prices near the level of nonbinding price floors or ceilings mark issac and charles plott report the results of twelve exploratory experiments in which various price control constraints are imposed on double auction markets their two principal conclusions can be summarized as follows 1 the hypothesis is rejected that nonbinding price controls that is price ceilings above or price floors below the competitive equilibrium ce will serve as a focal point or signalling price on which sellers and buyers will key their contracts 2 inconclusive evidence is presented in support of the hypothesis that nonbinding controls near the ce will bias prices below ce when there is a price ceiling and above ce when there is a price floor support for this second hypothesis is not conclusive because some experimental markets show a tendency to converge from below and others from above depending upon the relative bargaining strength of buyers as against sellers thus sampling variation among subjects can yield a group in which buyers sellers are able to make contracts at an average price below above ce for several periods of trading consequently in an experiment in which there is a price ceiling floor five cents above below ce and in which contract prices are observed to occur below above ce one cannot determine conclusively whether the observed effect was due to the nonbinding price control or to the bargaining characteristics of the market participants we report below an experimental design developed for the purpose of separating these confounding factors and allowing the effect of nonbinding controls to be isolated the results of sixteen experiments strongly support the hypothesis that markets with a nonbinding price ceiling floor near ce will converge from below above relative to any otherwise identifiable tendency to converge from below above an analysis of the effect of a nonbinding price ceiling floor on the distributions of bids and offers reveals the cause of this bias ceilings limit the bargaining strategies of sellers especially but also that of buyers while floors have the opposite effect thus in the absence of price controls double auction trading is characterized by a process in which sellers typically make concessions from offer prices well above ce while buyers most often concede from bid prices well below ce a price ceiling truncates seller offer prices at the ceiling requir university of arizona and indiana university respectively research support by the national science foundation is gratefully acknowledged