Thou shalt not trade—An analysis of the violations of no-trade predictions in experimental asset markets

This is the authors' abstract. We don't add key points for this paper.

In several studies on asset markets in a laboratory environment, observed trading activity is inconsistent with theoretical no-trade predictions. In a series of treatments, we systematically analyze violations and violators of the no-trade prediction and find that there are fewer violations with the manipulations but the trading activity does not cease completely. Three observations further contribute to a better understanding of this residual trading activity. First, traders exploit all available profitable trading opportunities even when transactions offer only a small profit. Second, unprofitable trades are significantly more concentrated among a few subjects than profitable trades, implying that only a minority is responsible for the observed trading activity. Third, a better understanding of the market mechanism significantly affects traders’ ability to generate profitable trades. In sum, these results strengthen the confidence in the well-functioning of laboratory asset markets.