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Does Money Impede Convergence? 

John D. Hey and Daniela Di Cagno

Experimental Economics 2015


Inspired by the conjecture that the necessity of trading through money in monetarised economies might hinder convergence to competitive equilibrium, and hence, for example, cause unemployment, we experimentally investigate behaviour in sequential markets. In order to evaluate the properties of these markets, we compare their behaviour to behaviour in simultaneous markets, where money does not intervene. As the trading mechanism might be a compounding factor, we investigate two kinds of mechanism: the double auction, where bids, asks and trades take place in continuous time throughout a trading period; and the clearing house, where bids and asks are placed once in a trading period, and which are then cleared by an aggregating device. We thus have four treatments, the pairwise combinations of simultaneous/sequential with double auction/clearing house. We find that: convergence is faster under simultaneous trading, implying that the necessity of using money to facilitate trade hinders convergence; that sequential trading is noisier than simultaneous trading; and that the volume of trade and realised surpluses are higher with the double auction than the clearing house. We suspect that the double auction, although on the surface more complicated for subjects to understand, enables them better to realise their desired trades. We also confirm the conjecture that inspired these experiments: that the necessity to use money in trading hinders convergence to competitive equilibrium, lowers realised trades and surpluses, and hence may cause unemployment.

JEL Classifications: C92, D40, E24

Keywords: clearing house mechanism, double auction mechanism, experimental markets, money, sequential trade, simultaneous trade.

The paper

Paper (PDF , 1,283kb)

Instructions (in Italian - as given to the subjects)

Istruzioni SD (MS Word , 37kb)

Istruzioni SC (MS Word , 38kb)

Istruzioni LD (MS Word , 40kb)

Istruzioni LD (MS Word , 40kb)

English translation of the Italian instructions

Instructions SD (MS Word , 38kb)

Instructions SC (MS Word , 38kb)

Instructions LD (MS Word , 38kb)

Instructions LC (MS Word , 38kb)


The software for the experiment can be found in the following two zip files, along with a readme document in Italian, and a readme document in English, describing how to install and run the software.

CIDA 1 (zip , 47,040kb)

CIDA 2 (zip , 29,895kb)

ReadMeItalian (PDF , 415kb)

ReadMeEnglish (PDF , 662kb)

Below you can see videos of the software:

Monetised Double Auction:

Monetised Clearing House:

Non-monetised Double Auction:

Non-monetised Clearing House:


The software was built by Andrea Lombardo, whose site can be found here.