"Arms or Legs: Isomorphic Dutch Auctions and Centipede Games"
In this paper we examine how two institutions previously thought of as
totally distinct - the Dutch auction and the centipede game - can in fact
be shown to be fairly closely related. We identify the structural
differences between the two institutions and systematically vary those
attributes; we derive theoretical predictions for equilibrium behavior
under each such set of variations. Having done so we are then able to
design and implement experiments which isolate the effect of particular
institutional design features such as the layout of the display confronting
the subject, and whether or not the subjects are able to act at the same
time as each other or are restricted to alternating turns. Empirically we
find patterns of behavior that cannot be explained using standard economic
theory. These are true anomalies which both point out the limits of
existing economic theory and point the way toward future research which
examines the internal details of how and why institutions matter.
Dr. Duncan James
