Days Without End: On the Stability of Experimental Single-Period Continuous Double Auction Markets

experimental economics, continuous double auction, equilibration, market dynamics, price stability We present results from four experiments in which a simple continuous double auction market is operated on a network of computer terminals. Our experiments are based on those reported by Smith & Williams in a 1983 paper, but with one significant procedural difference: unlike in other experimental markets with which we are familiar, in our market there is no division of time into a sequence of discrete trading periods or “days” where, at the start of each period, all traders receive their full entitlement to buy or sell units of commodity, and the traders gradually exercise these until they are all simultaneously replenished at the start of the next trading period, at which point all unexercised entitlements from the previous trading period expire. Rather, in our experiments, traders’ entitlements to buy and sell are updated periodically but the updates are sequenced out of phase in order to give a finer-grain discretization of time; and unexercised entitlements do not expire, but accrue until the end of the experiment. This change of method was introduced so that our experiments would have no direct correlate of discrete trading periods, and thus we could explore whether having discrete trading periods affects the dynamics of the market. Analysis of our results indicates that our single-period “continuous-time” markets showed equilibration dynamics remarkably similar to the “discrete-time” results presented by Smith & Williams. Thus, we conclude that our results offer no evidence to support the belief that the discretization of time in experimental markets affects the dynamics of those markets.