ECON 310W - PS Study Guide

Double Oral Auctions

Markets in which both buyers and sellers post bids and asks which they can constantly update until a price is agreed upon

Market Efficiency

The percentage of maximum surplus achieved by the trades that are made, calculated as consumer surplus plus producer surplus divided by the theoretical maximum

Convergence

The movement towards the equilibrium price in a market

Posted Offer Markets

Institutions in which one party posts a price and the other party simply accepts or rejects the posted price

Double Auctions vs. Posted Offers

Double auction markets are generally more efficient and quicker to converge to equilibrium than posted offer institutions

Binding Price Ceiling (Isaac and Plott)

When a ceiling is equal to the competitive equilibrium price, average prices diverge from and fall lower than the ceiling, potentially due to the buffer hypothesis

Removing Nonbinding Price Controls

The removal disequilibrates the market, causing prices to immediately rise above the competitive equilibrium

Market for Lemons

A case of asymmetric information where the seller knows the quality of the good being sold, but the buyer does not, potentially driving high-quality goods out of the market

Extreme Dictator Game

A variant where the dictator chooses between only two allocation options, and the recipient has no choice but to accept the decision

Dictator Game Framing Effects (Capraro and Vanzo)

Morally loaded language (e.g., "Steal" vs. "Boost") significantly impacts the dictator's choices and pro-social behavior

Voluntary Taxation Experiment (Luccasen and Thomas)

A real donation experiment testing whether participants will allocate their endowment to government agencies versus private organizations for causes like the arts

Voluntary Taxation Results

Donations are highest for cancer research and lowest for the arts, and participants give more to private organizations than to government agencies

Advantages of Economic Experiments

Data can be generated to fit specific questions, studies can be easily replicated, and incentivized subjects reflect true inclinations

Disadvantages of Economic Experiments

They can be expensive to implement, face translation challenges across countries, and face questions regarding whether student subjects are generalizable