Market Trading Game

Every trader holds a card. A buyer's card says the most the item is worth to them. A seller's card says what the item costs them to make. Nobody sees anyone else's card, and nobody is told the market price. Buyers call out prices they would pay, sellers call out prices they would accept, and whenever a bid meets an ask, those two traders do a deal.

Put all the buyers' cards in order and you get a demand curve. Put all the sellers' costs in order and you get a supply curve. Where they cross is the equilibrium: the price at which the number of items buyers want equals the number sellers will sell. No trader can see that point. Yet in markets like this one, prices end up close to it.

The economist Vernon Smith began running markets like this with his students in 1955, building on an earlier classroom experiment by Edward Chamberlin. In 1962 he reported that in most of his markets prices moved close to the equilibrium within a few rounds. That work helped earn him a share of the 2002 Nobel prize in economics. Later, Dhananjay Gode and Shyam Sunder (1993) showed something stranger: even simulated traders who bid at random, but never at a price that would lose them money, capture most of the possible gains from trade. The traders you meet here are that kind of simulated trader.