Economics Dictionary of Arguments

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Author Item Summary Meta data
Surowiecki I 144
Markets/Prices/Information/Smith, Vernon L./Surowiecki: Problem: How do markets work without information being available to everyone? How does it turn out that goods go from the people who produce them cheapest to the people...
Surowiecki I 145
...that need them most urgently?
Smith: investigated this question empirically in a laboratory in 1956 (which was unusual at the time). A group of 22 students were divided into buyers and sellers. Each seller received a card stating the lowest price at which he was selling, each buyer received a card with the highest price at which he should be willing to buy.
Surowiecki I 146
In the laboratory situation, this resulted in a "market" that followed the model of the so-called reciprocal auction, which is similar to the usual stock exchange. Offers and acceptances were announced by acclamation. Conclusions were noted on a blackboard.
Smith wanted to find out whether there would be a price in line with the market in theory.
Surowiecki I 147
In fact, prices quickly converged to a price, even though none of the participants wanted such a result, as buyers wanted lower prices and sellers wanted higher prices. The participants did not have any more information than the prices noted on the cards.
Further result: the Group's total profit was boosted by the market. The group could not have done better if it had had more information. (1)
Vernon L SmithVsArrow, Kenneth J./Surowiecki: Kenneth Arrow and Bernard Debreu had shown in the 1950s that markets are efficient and mistakes are impossible here: However, this so-called "balance weight hypothesis" was only shown with a theoretical model and not in a practical experiment.
Arrow/Surowiecki: in his theoretical model, buyers and sellers have extensive knowledge. (See Markets/Surowiecki)

Vernon L. Smith's study of his first classroom experiment is "An Experimental Study of Competitive Behavior", Journal of Political Economy 70/1962, pp. 111-137, and many of the articles he has published on this subject over the years are collected in two volumes: Smith, Papers in Experimental Economics (Cambridge University Press, Cambridge 1991); and Smith, Bargaining and Market Behavior (Cambridge University Press, Cambridge 2000).

Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution.
The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.

EconSmith I
Adam Smith
The Theory of Moral Sentiments London 2010

EconSmithV I
Vernon L. Smith
Rationality in Economics: Constructivist and Ecological Forms Cambridge 2009

Surowi I
James Surowiecki
Die Weisheit der Vielen: Warum Gruppen klüger sind als Einzelne und wie wir das kollektive Wissen für unser wirtschaftliches, soziales und politisches Handeln nutzen können München 2005

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