of certain characteristics of this asset, but not full information. The experiemnt begins when eachteam posts a bid and ask price for the asset which is displayed for all market participants.
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Trading commences as each team is allowed to make one and only one trade with a competing
market maker. Trades as well as bid/ask spreads are posted by the moderators who also vary infromation based on how the market adjusts. After each round of
trading, the teams are allowed to revise their bid/ask spreads. The market makers should find that the effective bid/ask spread in the market narrows and eventually reaches equilibrium based purely as a function of trading since no new information is provided. Depending on the class and students, variations can be introduced including informed outside traders or economic releases. These variations may greatly alter the market at first, as overreaction could occur. The experiment concludes when the bid/ask spreads have effectively bracketed the “true value” of the asset known only to those conducting the experiment.
Questions to Look At:
Before any new information entered the market, did the market effectively move?
What happens as new information arrives in the market?
Was passive or active trading more affective?
Emperical Evidence of Similar Experience:
"The amount of information one can receive depends on the person's background
knowledge about that particular information… Since different people have different
background knowledge about the same information, heterogeneity of opinion occurs
