The Effect of Decision Costs on the Formation of Market-Making Intermediaries : A Pilot Experiment

An economy is presented where trade is beneficial but not assumed. If trade is to occur, it must arise endogenously as either barter or mediated trade. The role decision costs play in the development of trade is explicitly recognized. The theoretical model is examined in an experimental setting by imbedding it in a computer trading game. The data obtained from the experiments are used to examine the impact of decision costs on the development of trade and on the welfare of subjects in the experimental economy