Instructions for the Second Experiment

This experiment involves two goods, which we shall denote as good X and good Y, that can be traded. You begin this experiment with a certain number of units of good X and a certain number of units of good Y. The initial endowments of those two goods are noted on the sheet that will be distributed to you subsequently. In the first round of the experiment, you will be allowed to trade some of your units of good X for additional units of good Y or some of your units of good Y for additional units of good X. In making trades, you must trade whole units of each good. For example, you can trade 2 units of good X for 3 units of good Y but you cannot trade 1 unit of good X for 1.5 units of good Y. You are free to make as many transactions as you wish except that you cannot end up with a negative amount of either good (i.e., you can't trade away in total more than your initial units of good X or your initial units of good Y). If you wish, in one trade you can give up some of good X to get some of good Y and in another trade you can give up some of good Y to get some of good X.

The objective of the game is to trade so as to reach the highest possible level, where the levels are described in the table below. There are 8 levels indicated below. Each level is defined by a row which includes nine different combinations of good X and good Y. Each combination is denoted by parentheses, with the first entry indicating the number of units of good X and the second entry indicating the number of units of good Y. You attain a particular level when the quantities of good X and good Y you end up with (after trading) are either both equal to or surpass one of the 9 X-Y combinations that define the level. For example, if you trade so that you end up with 18 units of good X and 37 units of good Y then you will have attained level 3 as the point (18, 37) is on level 3. Similarly, if you end up with 19 units of good X and 38 units of good Y then you would also end up on level 3 as there is no point on level 4 (or any higher level) which Is composed of 19 or less units of good X and 37 or less units of good Y.

The market for trades will be open for 15 minutes. To propose a trade, raise your hand and wait to be called. When you are called, indicate your trader number, as recorded on the sheet that will be subsequently distributed to you, and your proposed trade. For example, if you wanted to trade 3 units of good X for 4 units of good Y, you would say: Trader _______ offers three units of good X for 4 units of good Y. Trades should always be expressed by indicating first what you are offering to give up and then what you want to get, as in the preceding example. If someone accepts your offer then your proposed trade is made. Otherwise, new offers are solicited. Any offer that is not accepted becomes void and you are free to make a new offer.

Keep track of all trades so that you know how many units of good X and good Y you end up with. At the end of Round 1, compute your profits as follows. First, ascertain the level you attained based on the number of units of good X and good Y you end up with. Multiply this level by .50. For example, if you attained level 3 then you get 3 x $.50, or $1.50. Add to this a commission of $.10 for each of the first 16 units you sell of the good you have less of at the end of the round. For example, if you started with 72 units of good X and 10 units of good Y and you end up with 62 units of good X and 15 units of good Y, then add 10 x $.10, or $1.00, for the 10 units of good X you sold. If you ended up with less** **than 56 units of good X, meaning that you sold over 16 units of good X, than add 16 x .10, or $1.60, as you only get a commission on the first 16 units sold. Similarly, if you end with less of good Y then you started with (and more of good X) then compute the commission on the number of units of good Y sold. Record your total profits in Round 1, including the commission, in the space marked profits in Round 1 on the sheet you will subsequently be distributed. Also record the amount of goods X and Y you ended up with at the end of the** **round.

There are two rounds in the experiment. The second round is identical to the first. In the second round, you will again begin with the same number of units of good X and Y you started with in the first round. The rules of the second round are the same as the first round. At the end of the second round, compute your profits the same way as in the first round and record your profits and the numbers of units of goods X and Y you ended up with on the sheet you will subsequently be distributed. Then add your profits on the two rounds and enter the total on the space marked total profits. Make sure the names and sections of all members of your group are recorded on the sheet you will be subsequently given. Hand in this sheet at the end of the experiment.

Schedule of Levels

Level Combinations of X and Y

1 (10,72) (12,48) (14,28) (16,18) (17,17) (18,16) (28,14) (48,12) (72,10)

2 (12,84) (14,56) (16,32) (18,22) (20,20) (22,18) (32,16) (56,14) (84,12)

3 (14,96) (16,64) (18,37) (21,25) (23,23) (25,21) (37,18) (64,16) (96,14)

4 (16,108) (18,72) (21,41) (23,29) (26,26) (29,23) (41,21) (72,18) (108,16)

5 (18,126) (21,84) (24,48) (27,33) (30,30) (33,27) (48,24) (84,21) (126,18)

6 (20,138) (23,92) (26,53) (30,36) (33,33) (36,30) (53,26) (92,23) (138,20)

7 (22,150) (25,100) (29,57) (32,40) (36,36) (40,32) (57,29) (100,25) (150,22)

8 (24,168) (28,112) (32,64) (36,44) (40,40) (44,36) (64,32) (112,28) (168,24)