Intrinsically Worthless Objects as Media of Exchange: Experimental Evidence

This article reports results from an experiment that examines whether an intrinsically worthless, "token" object serves as a medium of exchange in a laboratory implementation of Kiyotaki and Wright's search model of money. The theory admits Nash equilibria in which the token object is or is not used as a medium of exchange. We find that subjects nearly always offer to trade for the token object when such a trade lowers their storage costs. However, subjects frequently refuse to offer to trade the token object for more costly-to-store goods when the theory predicts they should make such trades. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association