The instructions for all treatments were presented as a powerpoint-presentation. The first 10 slides explain how the market works and each subsection corresponds to a slide.
The last 10 slides describe the user interface and for that part of the instructions, each figure (figures A.4 – figure A.13) corresponds to a slide.
A.3.1 Welcome to SSEL
• Welcome and thank you for participating in today’s experiment.
• Today’s experiment will involve a series of markets. At the end of the experiment you will be paid in cash for your participation. Each of you may earn different amounts. The amount you earn depends on your decisions, chance, and on the decisions of others.
• You will be using the computer for the entire experiment, and all interaction between you and others will be through computer terminals. Please DO NOT socialize or talk during the experiment.
• If you have any questions, raise your hand and your question will be answered so everyone can hear.
• Please do not use any programs unrelated to the experiment.
A.3.2 Markets, Commodities, and Traders
• The experiment consists of a series of 7 market periods. Each period lasts 2.5 minutes during which you can submit as many bids and asks as you want.
• In each period, you will be in a group of 8 traders.
• In each period, one commodity labeled A will be traded.
A.3.3 Common Value
• The value of the commodity A is the same for all traders.
• This common value is either 0 or 100 points, each number being equally likely.
Imagine we flip a fair coin in each market period to determine the common value of commodity A.
• Traders will NOT know the value of A at the time of trading. Instead, each trader receives a common-value signal (CVS) about the commodity’s common value at the beginning of each period.
A.3.4 Common Value Signal I
• The common-value signal (CVS) is either 0 or 100. It can be either strong or weak.
– If you receive a strong CVS, your signal corresponds to the actual common value with probability 0.8.
– If you receive a weak CVS, your signal corresponds to the true common value with probability 0.6.
– Each CVS is equally likely to be strong or weak. You will be told whether your signal is strong or weak.
• Each trader receives exactly one common-value signal at the beginning of each market period. You can only see your own CVS, not the signals of other traders.
• Common-value signals are independent across traders and periods.
A.3.5 Common Value Signal II
This slide graphically explains how the CVS is determined and consists of figure A.3.
CV=100 CV=0
1/2 1/2
100 100
0
100 0
1/2 1/2
Strong CVS Weak CVS Trader i
100
100 100
100 0
0 100
4/5 1/5
0 100
3/5 2/5
Figure A.3. Drawing Signals.
A.3.6 Making Profits from Trades
• Traders make money by buying or selling commodities.
– Your profit from a purchase is simply: common value - price you pay.
– Your profit from a sale is simply: price you get paid - common value.
• In other words, you make money by BUYING BELOW THE COMMON VALUE and/or by
• SELLING ABOVE THE COMMON VALUE.
A.3.7 Maximum Number of Units
• You will start with 5 units of A and you have values for at most 10 units of A.
• In other words, if you hold more than 10 units of A, the additional units will be worthless to you even though you paid for them—so buying additional units results in a loss!
• You will not be able to sell more units than you currently hold. In other words, short sales are not allowed.
A.3.8 Market Prices
Whenever someone submits a new order, the computer checks if it can transact orders.
Here’s an example:
• Trader 1 bids 10 for A
• Trader 2 bids 65 for A (*)
• Trader 3 asks 35 for A (*)
• Trader 2 asks 55 for A
Here the orders with a (*) transact. The transaction price will be 50, that is halfway between the best ask price (35) and the best bid price (65).
A.3.9 Summary
• The experiment consists of a series of 7 market periods preceded by 1 practice period that does not affect earnings.
• Each period lasts 2.5 minutes, and you can submit as many bids/asks as you want during that time. After each submission the computer checks which orders can transact and determines corresponding prices.
• A trader’s profit is simply:
– common value - price paid when a unit of A is bought – price received - common value when a unit of A is sold.
• In other words, you make money by buying below the common value or by selling above the common value.
• Traders have values for at most 10 units of commodity A.
A.3.10 Concluding Remarks
• The exchange rate used in the experiment is 100 points for $1.
• You also receive a $5 participation fee.
• You will be paid at the end of the experiment the total amount you have earned in all of the periods. You need not tell any other participant how much you earned.
12
Your Screen
Market Period Time left
Cash Endowment The initial cash
endowment is borrowed and has to be paid back at the end of the period.
Commodity information
Figure A.4. Your Screen.
13
Submitting Orders
How to place Orders:
1. Highlight row 2. Click on the “Buy”
or “Sell” button 3. Click on the “Price”
field to raise price 5. If you want to
submit multiple copies of the same order, click on the
#Orders field and raise the spinner 6. Click “Submit
Order”
Figure A.5. Submitting Orders.