The control of asset bubbles such as the ones that impacted the dotcom world, property markets and commodities is just one topic for an "experimental economics" workshop in Christchurch.Keynote speakers for the Workshop are: Tim Cason - Purdue University, Martin Dufwenburg - University of Arizona, Charles Noussair - Tilburg University and James C. Cox - Georgia State University.
The University of Canterbury will on Friday and Saturday host the conference to be attended by "leading economists" from around the world.
The workshop is organised by Dr Maros Servatka and Dr Steven Tucker, experimental economists from the university's department of economics and finance.
In conjunction with the workshop the university is establishing a "New Zealand Experimental Economics Laboratory (NZEEL)", a purpose- built experimental economics laboratory with private rooms and observation areas.
Tucker said the fact the fourth Australasian workshop on experimental economics had moved outside its previous hosting place - the University of Melbourne - for the first time was a coup for Canterbury.
Topics to be presented during the two-day workshop include the world's "financial meltdown" and creation of asset bubbles, market institutions and the effect they might have on the behaviour of firms and consumers, and altruistic behaviour by individuals.
Experimental economics tried to use a methodology to test theories within "controlled laboratory experiments" to create economic parameters that were not observable in the real world, Tucker said.
"We actually bring in human subjects into this laboratory to make decisions within this environment which we create."
One of his co-authors Volodymyr Lugovskyy, was presenting from their paper "An experimental study of bubble formation in asset markets using the tatonnement pricing mechanism", Tucker said. The paper was also co-written by Daniela Puzzello.
They were reporting the results of an experiment designed to study the role of institutional trading systems or structures in the formation of bubbles and crashes in laboratory asset markets.
In the study they had employed the tatonnement trading institution - not previously explored in laboratory asset markets - with the results showing bubbles were eliminated. This was a much different trading system than the standard "double auction" used, for example, at the New York Stock Exchange.
The tatonnement system was an auction in which participants were together bidding and selling assets at many different price intervals. Prices are raised or lowered depending on demand.
Tucker said the area of experimental economics - using controlled experiments within a laboratory setting to study economic behaviour - was relatively young. A prime mover behind the studies had been Vernon Smith, who in 2002 was awarded (jointly with Daniel Kahneman) a Nobel memorial prize in economic sciences.
The establishment of a New Zealand Experimental Economics Laboratory as the main experimental economic research centre in New Zealand.
The thinktank would be of potential help to Kiwi companies in areas such as bargaining, and beneficial outcomes in business.
"We have just been granted the right for our research centre in experimental economics. We approached the vice-chancellor Rod Carr . . . and he awarded [money to] our proposal for the development of the lab," Tucker said.
Speakers will include: Morris Altman - Victoria University Wellington, Ananish Chaudhuri - Auckland University, Stephen Cheung - University of Sydney, Lana Friesen - University of Queensland, Ben Greiner - University of New South Wales, Anna Gunnthorsdottir - University of Sydney, Volodymyr Lugovskyy - Georgia Institute of Technology, Vai-Lam Mui - Monash University, Nikos Nikiforakis - University of Melbourne, Joerg Oechssler - University of Heidelberg, Maro Servtka - University of Canterbury, Robert Slonim - University of Sydney, Steven Tucker - University of Canterbury, Richard Watt - University of Canterbury and Tom Wilkening - University of Melbourne.
The program for the event is available here.
Personally I'm looking forward to hearing Maros's paper on Sense of Unity and the Hold-up Problem: A Behavioral Study of Firm Boundaries. The issue of how hold-up determines a firm's boundaries, via a reduction in hold-up problems because of vertical integration, is still not fully understood, so hopefully Maros's paper will be throw some light an important issue in the theory of the firm.