1. This is an experiment in the economics of market decision-making. The instructions are simple and can be easily followed.
2. In this experiment we are going to simulate a market in which some of you will be consumers and some of you will be sellers in a sequence of trading periods or market days. Two kinds of cards will now be passed out -- there are two different colors of cards. Those of you who receive a Seller Card will be sellers, and only sellers. Those of you who receive a Buyer Card are buyers, and only buyers. On the printed side each card appears a figure or price in dollars and cents. You are not to reveal this price to anyone. It is your own private information. After reading the card place it face down on the desk in front of you.
3. If you have received a Seller Card, you are the seller of at most one unit of fictitious commodity being sold in each trading period. The price on your Seller Card is the MINIMUM price at which you are to sell your unit of this commodity in any trading period.
If you have received a Buyer Card, you are a buyer of at most one unit of the commodity being sold in each trading period. The price on your Buyer Card is the MAXIMUM price at which you are to buy a unit of this commodity per trading period.
4. Sellers: The payoffs are as follows: if you are a seller, and you were able to make a sale, you will receive 5 cents for having made a sale plus the difference between the price at which you sold the commodity and the price on your Seller Card. Think of the price on your Seller Card as your cost of production. Your profits depend directly upon your ability to sell above this cost, but you should be prepared to sell at this cost, and receive your 5 cents commission, if you can do no better.
Buyers: If you are a consumer, and make a purchase, you will receive 5 cents commission, plus the difference between the price on your Buyer Card and the price at which you bought. Think of the price on your Buyer Card as the price you can get by reselling the unit in an entirely separate market, while the price at which you buy in this market is your cost. Your profits depend directly upon your ability to buy at a cost below the price on your Buyer Card, but you should be prepared to buy at that price, and collect your 5 cents, if you cannot do better.
ALL PLAYERS: The payoffs for each subject (Seller or Buyer) will be accumulated over several trading periods, and the total amount you receive in profit is summed at the end of the experiment. You are not to reveal your profits to anyone until the experiment is completed. There is no penalty except the profits you lose from failing to make a contract.
5. THE MARKET: The market for the commodity is organized as follows: We open the market for a trading day. Any consumer is then free at any time to raise his/her hand and make a verbal bid to buy at any price which does not exceed the price on his/her Buyer Card.
Likewise, any producer is free at any time to raise his/her hand and make a verbal offer to sell at any price which is not below the price on his/her Seller Card. Any seller is free to accepts the bid of any buyer, and any buyer is free to accept the bid of any seller.
As soon as a bid or offer is accepted, a binding contract has been closed, and the buyer and seller making the deal are to drop out of the market, making no more bids, offers, or contracts (i.e., you have only one unit of commodity to buy or sell in any trading "day"; after you buy or sell that one unit, you are out of the market for the remainder of that "day!"). This process continues for a period of several minutes, depending upon the volume of trading. You will be warned when the market is about to close and a few more bids or offers will be called for before actually closing. This completes a "trading day." We will then reopen the market for a new trading day, and so on, for a sequence of several "days."
6. Some of you may be unable to make a purchase or sale in any trading day. Some of you will be able to make a purchase or sale in some trading days, but not in others. There are likely to be many bids and offers that are not accepted. You are to keep trying and you are to feel free to earn as much as you can. Except for the bids and offers you are not to speak to any other student until the experiment is completed.