Asset bubble control topic for economics workshop

The control of asset bubbles such as the ones that impacted the dotcom world, property markets and commodities is just one topic for an "experimental economics" workshop in Christchurch.

The University of Canterbury will on Friday and Saturday host the conference to be attended by "leading economists" from around the world.

The workshop is organised by Dr Maros Servatka and Dr Steven Tucker, experimental economists from the university's department of economics and finance.

In conjunction with the workshop the university is establishing a "New Zealand Experimental Economics Laboratory (NZEEL)", a purpose- built experimental economics laboratory with private rooms and observation areas.

Tucker said the fact the fourth Australasian workshop on experimental economics had moved outside its previous hosting place - the University of Melbourne - for the first time was a coup for Canterbury.

Topics to be presented during the two-day workshop include the world's "financial meltdown" and creation of asset bubbles, market institutions and the effect they might have on the behaviour of firms and consumers, and altruistic behaviour by individuals.

Experimental economics tried to use a methodology to test theories within "controlled laboratory experiments" to create economic parameters that were not observable in the real world, Tucker said.

"We actually bring in human subjects into this laboratory to make decisions within this environment which we create."

One of his co-authors Volodymyr Lugovskyy, was presenting from their paper "An experimental study of bubble formation in asset markets using the tatonnement pricing mechanism", Tucker said. The paper was also co-written by Daniela Puzzello.

They were reporting the results of an experiment designed to study the role of institutional trading systems or structures in the formation of bubbles and crashes in laboratory asset markets.

In the study they had employed the tatonnement trading institution - not previously explored in laboratory asset markets - with the results showing bubbles were eliminated. This was a much different trading system than the standard "double auction" used, for example, at the New York Stock Exchange.

The tatonnement system was an auction in which participants were together bidding and selling assets at many different price intervals. Prices are raised or lowered depending on demand.

Tucker said the area of experimental economics - using controlled experiments within a laboratory setting to study economic behaviour - was relatively young. A prime mover behind the studies had been Vernon Smith, who in 2002 was awarded (jointly with Daniel Kahneman) a Nobel memorial prize in economic sciences.

The establishment of a New Zealand Experimental Economics Laboratory as the main experimental economic research centre in New Zealand.

The thinktank would be of potential help to Kiwi companies in areas such as bargaining, and beneficial outcomes in business.

"We have just been granted the right for our research centre in experimental economics. We approached the vice-chancellor Rod Carr . . . and he awarded [money to] our proposal for the development of the lab," Tucker said.

- © Fairfax NZ News