ABSTRACT
This chapter presents results from an ongoing experimental investigation of the buyer's bid double auction (BBDA). The BBDA is a two-sided clearinghouse trading mechanism in which buyers and sellers simultaneously submit sealed bids and offers for a single unit of a commodity. The chapter investigates the BBDA experimentally and aims to provide insight into how real buyers and sellers respond to the mechanism, with a view to developing a descriptively accurate model of double auction behavior. D. Friedman distinguishes between clearinghouse trading mechanisms and the more familiar continuous double auction trading mechanism. A clearing-house mechanism is a discrete trading mechanism in which buyers and sellers submit one set of bids and offers per trading period, after which the market clears according to a well-defined set of rules for who trades and at what prices. A random value environment is natural for investigating Bayesian Nash equilibrium theories of price formation in markets where traders have incomplete information regarding each other's valuations.
