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On the Behavioral Foundations of the Law of Supply and Demand: Human Convergence and Robot Randomness

Published online by Cambridge University Press:  14 March 2025

Paul J. Brewer ,
Maria Huang ,
Charles R. Plott  and
Brad Nelson
Paul J. Brewer*
Affiliation:
Center for Experimental Business Research, Department of Economics, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong
Maria Huang
Affiliation:
California Institute of Technology, Pasadena, CA 91125, USA
Charles R. Plott*
Affiliation:
Experimental Economics and Political Science Laboratory, California Institute of Technology, Mail Code 228-77, Pasadena, CA 91125, USA
Brad Nelson
Affiliation:
California Institute of Technology, Pasadena, CA 91125, USA
*
email: [email protected]
email: [email protected]
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Abstract

This research builds on the work of D.K. Gode and Shyam Sunder who demonstrated the existence of a strong relationship between market institutions and the ability of markets to seek equilibrium—even when the agents themselves have limited intelligence and behave with substantial randomness. The question posed is whether or not market institutions account for the operation of the law of supply and demand in markets populated by humans with no role required of human rationality. Are institutions responsible for the operations of the law of supply and demand or are behavioral principles also at work? Experiments with humans and simulations with robots both conducted in conditions in which major institutional and structural aids to convergence were removed, produced clear answers. Human markets converge, while robot markets do not. The structural and institutional features certainly facilitate convergence under conditions of substantial irrationality, but they are not necessary for convergence in markets in which agents have the rationality of humans.

Keywords

experimentsrationalityequilibrationrobots

JEL classification

D5: General Equilibrium and Disequilibrium C9: Design of Experiments
Type
Research Article
Information
Experimental Economics , Volume 5 , Issue 3 , December 2002 , pp. 179 - 208
Copyright
Copyright © 2002 Economic Science Association

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Footnotes

*

The financial support of the National Science Foundation, the Caltech Laboratory for Experimental Economics and Political Science, the Hong Kong SAR University Grants Committee and the HKUST Center for Experimental Business Research is gratefully acknowledged. We would like to thank Tim Cason, Leonard Cheng, S.H. Chew, Jim Cox, John Dickhaut, Dan Friedman, Steve Gjerstad, John Ledyard, Charles Noussair, Jason Shachat, and Shyam Sunder for their comments.

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