In an open marketplace, such as a farmers’ market where produce and other goods like candles and flowers are exchanged for money, the ideal prices for both consumers and sellers will quickly emerge. For example, if a seller tries to offer a bag of peaches for $10 but another vendor is willing to sell similar peaches for $5, the lower price will eventually win out and become the norm. This phenomenon, which is related to the law of supply and demand, was demonstrated experimentally starting in the 1960s by Caltech alumnus and Nobel Laureate Vernon Smith (BS ’49), now at Chapman University, and later by Caltech’s Charlie Plott, the William D. Hacker Professor of Economics and Political Science.
Now, nearly 60 years later, Caltech economists have analyzed data from 2,000 repetitions of these experiments, from researchers around the world, to demonstrate for the first time that the work of Smith, Plott, and others is reproducible on large scales. The research was published August 3 in the journal Nature Human Behaviour.