Vernon Smith notes

Vernon Smith notes - • Necessary conditions for an...

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Vernon Smith Properties of a Microeconomic System o The environment Economic agents List of commodities And characteristics of agents o The institution The rules of the game Rules of allocating How good gets transferred Cost implementation of rules How money gets transferred Pareto Allocation o You allocate goods in such a way that you can’t make someone better off without making another person worse off First fundamental theory of welfare economics o The competitive market leads to optimal allocations, or ones that are pareto efficient Second fundamental theory o Any pareto allocation can be achieved by any appropriate reallocation
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Unformatted text preview: • Necessary conditions for an experiment to be informative o Non-satiation You’re always trying to get more o Saliency Something significant that shows how you doing the experiment will benefit you o Dominance Payoffs of experiment must outweigh any transaction costs o Privacy Avoid any external interactions when payoffs are known to other subjects o Parallelism Can you make inferences from your experimental results to a naturally occurring market or system...
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