DP2017-03

Equilibrium Selection in M onetary Search
Models: An Experimental Approach
Kazuya KAMIYA
Hajime KOBAYASHI
Tatsuhiro SHICHIJO
Takashi SHIMIZU
March 8, 2017

Equilibrium Selection in Monetary Search Models:
An Experimental Approach∗Kazuya Kamiya†, Hajime Kobayashi‡, Tatsuhiro Shichijo§, and Takashi Shimizu¶
March 6, 2017

Abstract
It is known that there exists a multiplicity (indeterminacy) of stationary equilibria insearch models with divisible money. This paper investigate whether some specific stationary
equilibrium is selected through economic experiments. We observe that in some treatments
there is a tendency to converge to the most eﬃcient equilibrium. However, as a whole, there
remains some degree of indeterminacy.
Keywords: Real Indeterminacy, Random Matching, Money, Experiment, Equilibrium Selection.
JEL Classification Number: C91, C92, D51, D83, E40

1Introduction

The real indeterminacy of stationary equilibria has been found in both specific and general searchmodels with divisible money.1 In these models, there exists a continuum of stationary equilibria∗

We thank John Duﬀy, Hirokazu Ishise and Masahiko Shibamoto for helpful comments. This research isfinancially supported by the Nomura Foundation for Social Science, a grant-in-aid from Zengin Foundation for
Studies on Economics and Finance, Grant-in-Aid for Scientific Research (B) from JSPS (16H03596) and Grantin-Aid for Scientific Research (C) from JSPS (24530207 for the second author, 26380242 for the third author, and26380252 for the last author). Of course, any remaining errors are our own.
†
Research Institute for Economics and Business Administration, Kobe University, 2-1 Rokkodai-cho Nada-ku,
Kobe, 657-8501 JAPAN (e-mail: kkamiya@rieb.kobe-u.ac.jp)‡
Faculty of Economics, Kansai University, 3-3-35 Yamate-cho, Suita 564-8680 JAPAN (e-mail: khajime@kansaiu.ac.jp)§
School of Economics, Osaka Prefecture University, 1-1 Gakuen-cho, Naka-ku, Sakai 599-8531 JAPAN (e-mail:shichijo@eco.osakafu-u.ac.jp)¶
Graduate School of Economics, Kobe University, 2-1 Rokkodai-cho Nada-ku, Kobe, 657-8501 JAPAN (e-mail:shimizu@econ.kobe-u.ac.jp)
1
Green and Zhou [9, 10], Kamiya and Shimizu [14], Matsui and Shimizu [16], Zhou [19] for specific models,and Kamiya and Shimizu [12] for a general model.

and, money holdings distributions and equilibrium prices are diﬀerent across stationary equilibria. The purpose of this paper is to investigate whether some specific stationary equilibrium isselected through economic experiments.
Our baseline model is a variant of Zhou [19]’ model. Agents are randomly matched pair-wiseand each matched pair trade indivisible goods. In each matched pair, the roles of buyer and seller
are randomly assigned. A bargaining over a price proceeds by seller’s take-it-or-leave-it-oﬀer.
We focus on the stationary equilibria in which every good is traded with a common price, say p,
and the support of stationary money holdings distribution is {0, p}. Such an equilibrium is calleda single price equilibrium (SPE). In Section 2, it is shown that there is a region of parametersin which there exists a multiple SPEs.
We conduct the experiments using the above model. In order to investigate equilibrium
selection, we focus on the convergence of sellers’ oﬀer price. We observe that in some treatments
there is a tendency to converge to the most eﬃcient equilibrium. However, as a whole, there
remains some degree of indeterminacy. We also observe systematic deviations from typical SPEs.
First, many subjects avoid spending all their money holdings and keep a certain amount of money.
Second, some subjects become inactive as the session lasts longer.
There are a few theoretical papers concerning equilibrium selection. Matsui and Shimizu [16]introduces marketplaces to a monetary search model and adopts the concept of the evolutionary
stability. They demonstrate that, while there exists a continuum of stationary equilibria, eﬃcient
stationary equilibria only survive against the evolutionary pressure. Kamiya and Shimizu [13]introduce a kind of redistribution policy and show that such a policy makes stationary equilibria
locally determinate and enables the government to induce a desirable equilibrium. Lagos andWright [15] introduce the Walrasian markets in addition to the search markets. They demonstrate that the trading opportunities in Walrasian markets make an equilibrium money holdings
distribution degenerate and it leads to the uniqueness of stationary equilibrium.
There is only a few literature on experiments using monetary search models. Duﬀy andOchs [5, 6] study Kiyotaki and Wright model with either commodity or indivisible fiat money.
Duﬀy and Puzzello [7] investigate an equilibrium selection problem in an economy with divisible
fiat money. Their model is a variant of Lagos and Wright [15]’s model and there is a unique2

stationary monetary equilibrium and multiple non-monetary gift-exchange equilibria. Theirconcern is whether subjects choose an eﬃcient non-monetary gift-exchange equilibrium. It is
worthwhile noting that our concern is the selection from multiple monetary equilibria. In themodern market economy, only monetary equilibria are observed and our question seems to be
more important.
This paper investigates an equilibrium selection problem in a dynamic situation. In experimental economics, while there is a vast literature on exmeriments of equilibrium selection on
static games,2 equilibrium selection on dynamic games has attracted less attention. One exeption is research in infinitely repeated prisoner’s dilemma. According to the survey by Dal Bó andFréchette [3], the problem can be decomposed into the following two topics: (i) the determinantsof emergence of a specific equilibrium path, (ii) identification of strategies adopted by subjects
to attain that equilibrium path. If we look at the current paper from these viewpoints, contributions of this study are as follows. On the determinants of emergence of a specific equilibrium
path, we found that the subjects play some stationary equilibria more in the case of higher utility
treatment, but they play the eﬀcient outcome more in the lower utility treatment among theconverged paths. These findings imply that utility level may aﬀect both the convergence andthe emergence of a stationary equilibrium. With respect to the second point, we adopt a diﬀerent approach from the one adopted in the experimental studies of infinitely repeated prisoner’s
dilemma. Because the subjects can oﬀer prices from positive real numbers in our experiment,
we can not estimate the strategies through the method such as Strategy Frequency Estimation
Method (SFEM) by Dal Bó and Fréchette [2]. Instead, we estimate the price oﬀer strategies bychecking the convergence of price oﬀers in each group through the Dickey-Fuller test.
The plan of this paper is as follows. In Section 2, we present a variant of Zhou [19]’s money
search model that is used in the experiment. In Section 3, we reports the experimental design
including our parameterization and the findings of the experiment. Section 4 concludes thepaper.
2

For example, McKelvey and Palfrey [17] suggest the limiting logit equilibrium; Anderson et al. [1] study the
relationship between stochastic potential and logit equlibrium; Schmidt et al. [18] study the influence of risk
dominance in coordination games; Cachon and Camerer [4] study the eﬀect of loss avoidance.

32

Theory2.1

Environment

We consider a variant of Zhou [19]’s money search model with I agents, where I is a finite
positive integer larger than one. Time is discrete and horizon is infinite, denoted by t = 1, 2, . . . .
There are money and I types of goods. Agent i can produce one unit of type i good in eachperiod, and she cannot consume type i good by herself but can consume type-j good, wherej ̸= i. Goods are indivisible and perishable. Money is perfectly divisible and durable. The total
supply of money is M > 0. Each agent can hold any nonnegative amount of money.
The timeline in each period is as follows. In the beginning of each period agents observe
the current economy-wide money holdings distribution. Then bilateral random matchings takeplace. In each matching, each agent cannot observe the partner’s money holding, and one agent
becomes a seller with probability 12 and the other becomes a buyer. Then, a bargaining over a
price proceeds by seller’s take-it-leave-it-oﬀer. That is, the seller post a price p ≥ 0 and if thebuyer accepts, then the trade occur, i.e., he pays p and consumes one unit of good, and otherwise
there is no trade. Finally, the matching resolves and the economy ends with probability 1 − δand it goes to the next period with probability δ.
u is the utility of one unit of good and c is the cost of producing one unit of goos. We assumeu > c > 0. Although agents do not discount future payoﬀs, δ plays a role of discount factor.

2.2Single Price Equilibrium

As in Zhou [19], we focus on a special class of stationary equilibria called single price equilibria,
where some agents have p ≥ 0 amount of money and the other agents do not have money, andthe equilibrium price of goods is p.3
Definition 1 A single price equilibrium (SPE) is a pair of price and the number of agents who
do not have money, denoted by (p, I0 ), satisfying
1. (I0 /I, I1 /I), where I1 = I − I0 , is a stationary money holdings distribution,
3

In Zhou’s original model, where there are infinite number of agents, there exist other types of single priceequilibria in which equilibrium money holdings distribution is on {0, p, 2p, . . . , N p}. Note that, in the case of finite
number of agents, it can be shown that a money holding distribution with N ≥ 2 cannot be stationary.

42. p satisfies M/p = I1 ,3. a seller oﬀers p if her current money holding η is less than p,
4. a seller oﬀers a price which is never accepted, e.g., 2p, if her current money holding η islarger than or equal to p, and
5. a buyer accept p whenever she holds η ≥ p.
Note that the money holdings distribution is clearly stationary if all agents play the equilibrium
strategy defined above. Next, we define the value function as follows:{()
H1{−c + δV (p)} + 1 − H21 δV (0)2()
V (np) = H0
H0
2 {u + δV ((n − 1)p)} + 1 − 2 δV (np)if n = 0,
if n ≥ 1,

In
where Hn = I−1. Solving this, we obtain
{
}n {
}
δH0
2(1 − δ) + δH0
H0u−(H0 u + H1 c).
V (np) =2(1 − δ)2(1 − δ) + δH02(1 − δ) (2 − δ(2 − H0 − H1 ))We first consider the conditions 3 and 4 in the above definition on the equilibrium path, i.e.,the case of agents with money holdings zero and p. The condition 3 in the above definition isexpressed as−c + δV (p) ≥ δV (0).
This means that an agent without money chooses to sell her production good with the price p
instead of oﬀering the price which cannot be accepted by any buyer. This is equivalent to2(1 − δ) + δH0
u
≥
.
c
δH0

(1)

The condition 4 in the above definition is expressed asδV (p) ≥ −c + δV (2p).
This means that an agent with p amount of money chooses to oﬀer a price which cannot be
accepted by any agents. This is equivalent tou(2(1 − δ) + δH0 ) (2(1 − δ) + δ(H0 + H1 )) − δ 2 H0 H1≤.
cδ 2 (H0 )2(2)

We can show that these conditions are suﬃcient. That is, the condition 3 and 4 follow from (1)and (2), and the condition 5 in the above definition can be easily shown.
5

2.3

SPE with residuals

Besides SPEs defined in the previous subsection, there may exist a variant of SPEs in which someagents hold small amounts of money with no values on the equilibrium path. We call such small
fractions residuals. To be more precise, we define a vector of residuals (r1 , . . . , rI ) as follows.
When agent i holds p + ri amount of money, she is a potential buyer, and when she only holds
ri amount of money, she is a potential seller. Condition 2 in the definition of SPE is replaced by
pI1 +

I
∑

ri = M.

i=1

Since ri has no value on the equilibrium path, max{r1 , . . . , rI } < p must be satisfied. If werequire that money holdings distribution including residuals is time-invariant, r1 = · · · = rI
must be satisfied. Indeed, suppose consumer 1 is a seller with money holding r1 and consumer 2
is a buyer with money holding p + r2 , where r1 ̸= r2 , then the money holdings after a trade are
p + r1 and r2 and clearly (r1 , p + r2 ) ̸= (r2 , p + r1 ). Since the residuals have no value, it might
be better to define stationary money holdings distributions without using residuals.

3

Experiment

3.1

Experimental Design

The experiments were conducted at Kansai University on January, February, and December in2015 and June and July in 2016. 492 subjects in total voluntarily participated at The Center
for Experimental Economics, Kansai University. The subjects were all undergraduate students
at Kansai University with no prior experience of the game we conducted.
We considered the case I = 6. In each session, 24 or 18 subjects were randomly divided into
4 or 3 groups consisting of 6 members and interacted through z-Tree software (Fichbacher [8].)In the beginning of each session, subjects were given written instructions on the game they wereabout to play.4 After the written instructions were read aloud, subjects had to correctly answer
a number of questions about the rule of the game.
4

Instructions are given in Appendix.

6Each session consisted of several sequences. A sequence consisted of an indefinite number of
periods of a stage game. In each stage game, members of each group were randomly matched inpairs. Each pair bargained over a price according to the process we described in Section 2. At
the end of each stage game, the sequence continued with probability δ. If a sequence ended andone hour had not passed after the instruction, the current group were resolved and new groups
consisting of 6 subjects were randomly formed.
We choose the following parameter values:• δ = 0.9,
• c = 10, and• M = 600.
We conducted the experiments with two diﬀerent values of u: u = 14 and u = 20. In thecase of u = 14, by (1) and (2), it is verified that there exist the following 3 types of single priceequilibria:• The price is 200, and 3 agents hold 200 units of money and the other agents hold no money
in a stationary money holdings distribution,• The price is 300, and 2 agents hold 300 units of money and the other agents hold no money
in a stationary money holdings distribution, and• The price is 600 and 1 agent holds 600 units of money, and the other agents hold no money
in a stationary money holdings distribution.
On the other hand, in the case of u = 20, by (1) and (2), it is verified that there exist thefollowing 2 types of single price equilibria:• The price is 150, and 4 agents hold 150 units of money and the other agents hold no money
in a stationary money holdings distribution, and• The price is 200, and 3 agents hold 200 units of money and the other agents hold no money
in a stationary money holdings distribution.
7

Note that the SPE with p = 200 is the most eﬃcient in both cases.
We conducted experiments with diﬀerent initial money holdings and the information which
subjects obtain. As for initial money holdings, there are four cases:• dis300: 2 agents hold 300 units of money and the other agents have no money,• dis200: 3 agents hold 200 units of money and the other agents have no money,• dis150: 4 agents hold 150 units of money and the other agents have no money, and• dis100: all agents hold 100 unit money.
Note that the last initial money holdings do not constitute SPE in both cases.
As for the information structure, there are two cases:• ShowPrice=0: each subject was only informed of her current money holding and thecurrent money holdings distribution of the group they belong to, and• ShowPrice=1: in addition to the information in ShowPrice=0, each subject was informed of the prices of the group with which trades were successfully made.
Each subject was initially endowed with 300 points as a show-up fee. Her/His total points
consisted of initial 300 points plus the cumulative points he acquired in all the sequences. Total
points were converted into cash at the end of the session at the exchange rate of 1 point =10JPY.

3.2

Experimental Results

Below, we report the results from 21 sessions. We conducted 9 sessions with ShowPrice=0 and
12 sessions with ShowPrice=1. A summary of experimental sessions is given in Table 1.
3.2.1

Gift Giving

In an economy with a finite number of agents, gift giving equilibria can occur. That is, it is easy
to see that the following strategy can be a stationary equilibrium if δ is suﬃciently close to one:for all period t
8

in each meeting, (i) each seller oﬀers p = 0 and (ii) each buyer accepts p = 0 if he
did not observe a price oﬀer p ̸= 0 or a rejection of p = 0 in periods, s = 1, . . . , t − 1,and reject any oﬀer otherwise.
Table 2 reports the frequencies of oﬀer prices. The percentage of p = 0 is below 1% and thus
we can conclude that gift giving equilibria rarely occurs.
Result 1 Gift giving equilibria rarely occurs.
3.2.2

Convergence of Oﬀer Prices

Next, we investigate the convergence of oﬀer prices. First, there are two types of oﬀer prices: a‘no-sale oﬀer’ and a ‘serious oﬀer’. The former is a price which is too high and no potential buyer
can aﬀord to buy the good, and the latter is a price which is not too high and some potential
buyer can aﬀord to buy the good. Since, in the definition equilibrium (p, I0 ), p is a serious oﬀer,
then we focus on the convergence of serious oﬀer prices.
We focus on the samples whose length of sequences are longer than or equal to 21, since if
the length is short, then a price data is less likely to converge. Moreover, we use price data fromperiod 6, since in the beginning of the experiments subjects are not get used to the game. In thepresent paper, we adopt Dicky-Fuller test for testing convergence of oﬀer prices. More precisely,
we estimate the following equation:pt − pt−1 = α + βpt−1 + εt ,where pt is the mean of serious oﬀer prices at period t and εt is an error term, and test the null
hypothesis H0 : β = 0. If εt is i.i.d. with mean zero, denoted by ε, then the process is
pt = (1 + β)pt−1 + α + ε.
Thus
pt = (1 + β)t−1 p1 −1 − (1 + β)t−1
1 − (1 + β)t−1
α−
ε
β
β

holds. Therefore, if β < 0, then price process converges to a stationary process with mean − αβ .
If the hypothesis is rejected for a given significance level, then β < 0. The reason is that β > 09implies divergence of pt and it contradicts the fact that pt is less than or equal to the total money
holding M . We consider a group as a non-convergent one if the null hypothesis is not rejectedwith significance level of 90 %, otherwise as a convergent one.
As for the convergent groups, we define a variable LimitPrice as the estimated value of − αβ .
It can be considered as the estimated limit point of serious oﬀer price dynamics. LB is the lower
bound of confidence interval of − αβ .5 If a subject holds η < LB, we consider that η cannot be
used in trades, since oﬀer prices are likely to be more than LB. Rich is the average numberof subjects whose money holdings are above LB within the last 5 periods of the sequence. We
consider this as the number of hypothetical buyers. Residual is defined as follows:
Residual :=M − LimitPrice × Rich.
6

It is a hypothetical average amount of money not used in trades. Note that we use LimitPriceinstead of LB. We can define Residual using LB. We call the groups inconsistent, if their
Residual is larger than or equal to their LimitPrice. This is because Residual clearly has apositive value and it contradicts the definition of SPE. We call the other groups consistent.
We classify the groups using Rich as follows. A group is called Class-N if the closest integerof Rich is N . For example, if Rich= 1.8, then the group is Class-2.
Figures 1 and 2 illustrate typical paths of pt and LimitPrices in convergent and nonconvergent groups.
Our first observation is on the residuals.
Result 2 All convergent and consistent groups have a significant amount of residuals.
Table 3 shows the basic statistics of Residulal. The mean of Residual is about 50 and theminimum is above 15. Recall that the total amount of money is 600.
We first investigate whether subjects intentionally hold residuals. Figure 3 illustrates buyer’s
response to acceptable oﬀer. In the left panel, the horizontal axis is the remaining amount ofmoney after buying goods. In the right panel, the horizontal axis is the proportion of remaining
amount of money to the money holdings before buying goods. Both panels indicate that the more
If the null hypothesis β = 0 is rejected, then {pt } is a stationary AR process. Thus in the case of convergent
groups the confidence interval of − α
can be calculated using a standard technique.
β510money remains, the more likely the buyers accept. Which is the buyers’ concern, the remaining
amount or proportion? We used the random eﬀects, probit estimation of buyer’s acceptance.
(See Table 4.) We used the remaining amount and the remaining proportion as explanatory
valuables, and the remaining proportion is significant and positive, while the remaining amountis not significant. Therefore, we conclude that buyers intentionally hold residuals and only care
the remaining proportions.
Next, we investigate the impacts of period and risk aversion on the acceptance of oﬀer. In
the random eﬀects, probit estimation, we used variables Period and Holt-Laury Score. The
former is defined as period number not in a sequence but in a session. The latter measures adegree of subject’s risk aversion, proposed by Holt and Laury [11]. Table 4 shows that both
Period and Holt-Laury Score are significant, and the former is positive and the later isnegative.
Result 3 Period and Holt-Laury Score are significant, and the former is positive and thelater is negative.
Next, we present some results on the convergence of oﬀer prices. Figure 4 shows the bar
graphs of the frequency of each category of the groups in the case of u = 14. 11 groups belong
to non-convergence category. All groups are consistent with some SPE. That is, in the caseof u = 14, the number of agents who has money is 1, 2, or 3 in stationary equilibria, and allgroups are Class-1, Class-2, or Class-3. Moreover, Class-3 is most frequently observed andit corresponds to the most eﬃcient SPE. Therefore, we conclude that in the case of u = 14, theoﬀer price is most likely converge to the most eﬃcient stationary equilibrium.
Result 4 In the case of u = 14, the oﬀer price is most likely to converge to the most eﬃcient
stationary equilibrium.
Figure 5 is the case of u = 20. A red bar means that a group is consistent with some SPE,
while a blue bar means that it is not consistent with any SPE. Comparing those graphs with thecase of u = 14, we can find the following two features. The first finding is that the frequency of
non-convergent groups is very low. The second finding is that, in many convergent groups, there
are fewer buyers than the theory predicts.
11

Result 5 The frequency of non-convergent groups is much less in the case of u = 20 than in
the case of u = 14.
Result 6 In the case of u = 20, the number of hypothetical buyers (Rich) is less than that inSPEs.
As for Result 5, a possible reason is that a higher utility leads to a higher acceptance rate,
and thus oﬀer prices converge in relatively early stage. That is, frequent trade lead to spread of
information on subjects’ strategy, and thus they can coordinate on a SPE in a relatively earlystage. Indeed, we can observe that buyers’ acceptance rate is higher in the case of u = 20 thanthat of u = 14. (See Table 5.) We also conducted Wilcoxon-Mann-Whitney test on the null
hypothesis H0 : the acceptance rates are equal. The hypothesis was rejected with significancelevel 99 %.
As for Result 6, a possible reason is due to the existence of inactive sellers. That is, somesubjects refuse trades, i.e., oﬀer a very high price, even when they only hold a small amountof money. If we exclude these subjects, then the number of hypothetical buyers is fewer and isconsistent with some SPE. To see this, we define the variable InactiveSellerRate: the rate ofno-sale oﬀers among all oﬀers when sellers’ current money holdings are less than LB within thelast 10 periods of the sequence. We have 7 samples in which the number of buyers are fewer
than that of any SPE. Among such samples, InactiveSellerRates are above 0.4 in 5 samples.
This seems to be an evidence that a certain number of subjects are inactive.6
To investigate the determinants of inactive sellers, we conducted random eﬀects, probit estimation of no-sale oﬀer. (See Table 6.) We focused on the sellers whose money holdings are theleast within the groups they are belonging to. This is because such sellers must make serious offers in any monetary equilibrium. The results are (i) Period has a significant positive eﬀect, (ii)Money Holding has a significant positive eﬀfect, and (iii) AcquiredPoints and Holt-Laury
Score have no significant eﬀects. This means some subjects become inactive as a session lasts
longer.
6

Theoretically, there is also a possibility that subjects play mixed strategy equilibrium with mixing no-saleoﬀer and serious oﬀer.

12

4Conclusion

In this paper, we present a monetary search model with multiple single price stationary equilibria(SPE). We observe that in some treatments there is a tendency to converge to the most eﬃcientequilibrium, however, as a whole, there remains some degree of indeterminacy. We also observe
deviations from typical SPEs. First, many subjects avoid spending all of their money holdings
and keep some small amount of money. Second, some subjects become inactive as the session
lasts longer.

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[9] Edward J. Green and Ruilin Zhou. A rudimentary random-matching model with divisible
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14

Appendix: Sample Instructions
The instructions are originally written in Japanese. Here, we provide a translated sample copyof the experimental instructions used in our treatment “dis200 & u=20 & ShowPrice=1.”7 The
instructions for the other treatments were adapted accordingly. The screen shots of the program
are illustrated in Figures 6-10.

Instructions
This experiment is one concerning economic decision-making. If you are able to understand these
instructions well, and carry out appropriate decision-making, you can earn a reasonable amountof money. Points that are acquired during the course of this experiment will be converted intomonetary funds and paid out in cash once the experiment is over. At the start of the experiment,
you will be given 300 points, which fluctuate in accordance with your decision-making thereafter.
In this experiment, 1 point will be converted to 10 yen.
1. In this experiment, you will engage in multiple instances of decision-making. You are to
randomly gather with other subjects into one group consisting of six people, and carry out
decision-making multiple times. This period in which you create a group with the same
six people will be called a “cycle.”
2. The length of the cycle will be randomly determined. After each decision-making instance,
there is a 90% probability of continuing this cycle. In other words, there is a 10% probability
that the cycle will end.
3. Once the cycle ends, six new people will form one group at random, and a new cycle will
begin.
4. During each cycle, six people will form one group and engage in decision-making. Thesesix people will not change (groups) until one cycle is over.
7
In the main part of this paper, we use the term “sequence” to refer a sequence of the stage games until the
period when a play are randomly terminated. However, we used the term “cycle” to refer the same object in our
instruction. This is because the term “cycle” is more fitted to this context in Japanese.

15

5. In this experiment, apart from points, a substitute currency will be used. At the start ofeach cycle, three members from each group will be assigned 0 units of substitute currency,
while the remaining three members will be assigned 200 units of substitute currency at
random.

Figure 11 shows the summary of the aforementioned flow.

Each period will proceed according the following format.
1. In each period, among the six people who created the same group at the beginning of thecycle, you will randomly form a group of two with subjects other than you and engage indecision-making.
2. Although you are allowed to know the distribution of the substitute currencies among thesix members of your group, you will not be able to know the amount held by the paired
opponent.
3. One of the people in the pair will be assigned the role of a “buyer,” while the other will beassigned the role of a “seller” at random.
4. The seller will always have the opportunity to sell one unit worth of goods to the buyer.
When doing so, the seller will present the amount of substitute currency requested to thebuyer in exchange for the goods.
5. Upon looking at the amount of substitute currency that has been requested, the buyer
decides whether to “make a deal” or “do not make a deal.” However, when the amountof substitute currency requested by the seller is more than the amount held by the buyer,“do not make a deal” is automatically selected.
6. If the buyer chooses “make a deal” and a deal is established, the buyer acquires 20 points;
at the same time, the buyer loses the requested amount of substitute currency. On the16other hand, when a deal is established, the seller loses 10 points as the cost of producing
the goods; at the same time, the seller acquires the substitute currency that was requested.
7. If the buyer does not make a trade, both the buyer and seller will earn 0 points. In otherwords, there will be no increase or decrease in terms of points. Furthermore, there will be
no increase or decrease in terms of substitute currency.
8. Here, it is worth noting that the buyer will lose the requested amount of substitute currency
instead of being able to earn points by trading and acquiring the goods, and the seller willlose points as the deal is made and the goods are handed over to the buyer. In particular,
points are not acquired from the holding of substitute currency.
9. The following three pieces of information about the group will be displayed at the end ofeach period. (1) Success or failure in regard to making a deal among the three pairs in thegroup, (2) the amount of substitute currency requested by the seller for groups in which
deals are made, (3) distribution of the substitute currency held by the six members of thesame group after these deals have been made.

Figure 12 shows the summary of the aforementioned flow.
Notes:(1) At the beginning of the cycle, assignment of the substitute currency is determined randomly, regardless of the amount of substitute currency held in the prior cycle. In otherwords, at the end of the cycle, all substitute money held will be set to zero, and will be
newly assigned randomly at the start of the next cycle.
(2) The experiment will end at the end of the first cycle after one hour has passed since thestart of the experiment.

17

Session No., Treatment
1: u=14, dis200, ShowPrice=02: u=14, dis200, ShowPrice=03: u=14, dis100, ShowPrice=04: u=14, dis100, ShowPrice=0
5: u=14, dis300, ShowPrice=0
6: u=14, dis300, ShowPrice=0
7: u=14, dis100, ShowPrice=08: u=14, dis200, ShowPrice=0
9: u=14, dis300, ShowPrice=0
10: u=14, dis200, ShowPrice=1
11: u=14, dis300, ShowPrice=1
12: u=14, dis300, ShowPrice=1
13: u=14, dis100, ShowPrice=1
14: u=14, dis100, ShowPrice=1
15: u=14, dis200, ShowPrice=1
16: u=20, dis200, ShowPrice=1
17: u=20, dis200, ShowPrice=1
18: u=20, dis100, ShowPrice=1
19: u=20, dis100, ShowPrice=1
20: u=20, dis150, ShowPrice=1
21: u=20, dis150, ShowPrice=1

Subjects
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×4
6×3
6×4
6×3
6×4
6×4
6×4

Total Periods
44
76
45
48
50
55
55
53
55
49
55
54
53
57
49
44
64
46
48
48
66

Sequences
2
4
9
8
10
7
8
7
2
7
10
7
4
6
6
4
8
2
4
6
7

Table 1: Summary of Experimental Sessions
Oﬀer Pricep=0
0 < p < 100
100 ≤ p < 200
200 ≤ p < 300
300 ≤ p < 400p ≥ 400

Frequency
72
3,285
3,481
2,865
1,755
1,574

Percent
0.55
25.21
26.71
21.98
13.47
12.08

Table 2: Frequency of Oﬀer Prices

18

Ave. Duration
22
19
5
6
5
7.9
6.9
7.6
27.5
7
5.5
7.7
13.25
9.5
8.2
11
8
23
12
8
9.4

Figure 1: Price Paths and Limit Price of Convergent Group

Figure 2: Price Paths of Non-Convergent Group

Mean
Min
Max

Residual
46.86
15.57
77.15

Table 3: Statistics of Residuals

19Figure 3: Buyers’ Response to Acceptable Oﬀer

PeriodOﬀer Price
Money Holding

(1)

(2)

(3)

(4)

0.0398***(0.00242)-0.0155***(0.000668)
0.00776***(0.000544)

0.0365***(0.00228)

0.0385***(0.00310)-0.0155***(0.000867)
0.00806***(0.000704)

0.0354***(0.00295)

Remaining Amount-0.00120(0.000813)
3.076***(0.197)

Remaining ProportionHolt-Laury Score
Constant

0.487***(0.0802)-0.820***(0.0825)-0.0598*(0.0336)0.737***(0.239)Observations
Standard errors in parentheses*** p < 0.01, ** p < 0.05, * p < 0.1

4,349

4,322

2,523

Table 4: Random Eﬀects, Probit Analysis on Buyers’ Acceptance20-0.000451(0.00106)
2.837***(0.251)-0.0685**(0.0343)-0.415*(0.248)2,511

Figure 4: Number of Hypothetical Buyers: u = 14

Figure 5: Number of Hypothetical Buyers: u = 20

u=14
u=20

Acceptance Rate
0.34
0.41

Table 5: Higher Buyer’s Acceptance Rate in u = 20

21Period

(1)

(2)

(3)

(4)

0.0470***(0.00268)

0.0480***(0.00574)
0.00144(0.00355)
0.0303***(0.0100)

0.0494***(0.00376)

0.0583***(0.00846)-0.00158(0.00458)
0.0316**(0.0136)-0.104(0.153)-2.610(1.898)691

AcquiredPoints
Money Holding
Holt-Loury score
Constant-3.441***(0.182)-3.690***(1.146)0.00458(0.103)-3.983***(0.728)Observations
Standard errors in parentheses*** p < 0.01, ** p < 0.05, * p < 0.1

4,073

1,386

2,102

Table 6: Random Eﬀects, Probit Analysis on Seller’s No-Sale Oﬀer

22

Figure 6: Seller’s Decisions Screen

23Figure 7: Buyer’s Decisions Screen: Acceptable Oﬀer

24

Figure 8: Buyer’s Decisions Screen: Non-Acceptable Oﬀer

25

Figure 9: Transaction Result Screen: ShowPrice=026

Figure 10: Transaction Result Screen: ShowPrice=1

27

Figure 11: Relationship Between Each Period and Cycle28

Figure 12: Decision-Making Flow for Each Period29