Theories of price formation and exchange in double oral auctions

We provide a theory to explain the data generated by experiments with double oral auctions. Our theory predicts convergence to the equilibrium implied by the law of demand and supply and provides an explanation of disequilibrium behavior. The predictions of our theory seem to fit the data better than do the predictions of Walrasian, Marshallian, or game theoretic models. Our theory also suggests that, in demand-supply environments, the double oral auction is remarkably robust in the sense that aggregate performance is similar for a very wide range of individual behaviors.