Principles of Continuous Price Determination In An Experimental Environment With Flows Of Random Arrivals And Departures

Abstract

A new experimental market environment is developed. Continuously arriving incentives replace the traditional period structure. The issue posed is whether classical principles of market behavior apply when the environment is constantly changing. Three broad results emerge. (1) Natural "flow" generalizations of the laws of demand and supply exist and dictate much of the market behavior. (2) Two different classes of laws operate: the "temporal equilibrium", which is based on the parameters that exist in the market at a moment and the "flow competitive equilibrium," which reflects the probabilistic structure of the parameters. (3) The markets exhibit extraordinarily high levels of efficiency.

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