Sunspots in the Laboratory

John Duffy, University of Pittsburgh
Eric O'N. Fisher, The Ohio State University

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Copyright © 2005 American Economic Association. The definitive version is available at http://dx.doi.org/10.1257/0002828054201350.

NOTE: At the time of publication, the author Eric Fisher was not yet affiliated with Cal Poly.

Abstract

We show that extrinsic or non-fundamental uncertainty influences markets in a controlled environment. This work provides the first direct evidence of sunspot equilibria. These equilibria require a common understanding of the semantics of the sunspot variable, and they appear to be sensitive to the flow of information. Extrinsic uncertainty matters when information flows slowly, as in a call market, but it need not matter when information flows quickly, as in a double auction where infra-marginal bids and offers are observable.