Beyond the absence of gains from trade

We re-examine the trading motives in asset market experiments that typically utilise the Smith, Suchanek, Williams (SSW) continuous double auction framework. Our focus is on how to address the no-trade equilibrium dilemma. Theoretically, traders sharing common fundamental asset-value expectations should result in no trade. Yet, experiments show extensive trading contradicting the theory. Trades are often fuelled by speculation on other traders’ subjective beliefs when only one party benefits at the expense of another. A proper trading motive, however, can be induced when both buyer and seller gain mutually from their exchanges. We subsequently look at how strategic complementarity between buyers and sellers can be induced in the experimental design.