Econometrics Commons^™

A Classical Model Of Speculative Asset Price Dynamics, Sabiou M. Inoua, Vernon L. Smith

ESI Working Papers

In retrospect, the experimental findings on competitive market behavior called for a revival of the old, classical, view of competition as a collective higgling and bargaining process (as opposed to price-taking behaviors) founded on reservation prices (in place of the utility function). In this paper, we specialize the classical methodology to deal with speculation, an important impediment to price stability. The model involves typical features of a field or lab asset market setup and lends itself to an experimental test of its specific predictions; here we use the model to explain three general stylized facts, well established both empirically and …