In 2023, over 18 percent of US households were either unbanked or underbanked, a group commonly referred to as financially underserved (e.g., see Burhouse, Navarro and Osaki (2016)). Prior work and survey evidence identify a lack of broad-scope trust in banks as an important reason for financial exclusion (e.g., FDIC (2024), Falcettoni and Nygaard (2025), and Xu (2020)). Yet it is not clear whether this mistrust is unique to banks or whether it extends to other institutions, such as government entities or nonbank providers of account services. This distinction matters for policymakers when considering how to serve this segment of the population. If mistrust is specific to banks, then alternative providers of account services — such as nonbanks or government entities — could improve access to the financial system. But if mistrust extends to alternative providers, then financial education or other trust-building initiatives might be more effective at increasing financial inclusion. To address this gap, we designed our own surveys and fielded them to a sample of unbanked and underbanked individuals in the US. We elicited their levels of trust in various institutions, including different types of banks, government-related entities, and alternative payment providers. Using principal component analysis, we identify three dominant components of the trust scores which we label, in descending order of importance: (1) broad-scope trust, (2) concerns about traditional financial institutions, and (3) preference for a physical business presence. We explore how sociodemographic characteristics, including income, age, education, race and political affiliation, affect these components of trust.

Abstract We investigate the channels through which inflation expectations affect household spending by conducting surveys featuring hypothetical scenarios involving an increase in inflation expectations. Most households did not adjust their current spending plans, often because they perceived inflation expectations as irrelevant or adhered to a fixed budget. Among those who did adjust, most decreased their spending, primarily due to wealth effects. Few households increased spending as prescribed by the traditional intertemporal substitution channel. We also document that financial conditions, cognitive ability, and subjective mental models—such as stagflationary expectations—help predict spending responses and the mechanisms households cite. Our findings provide insights into the discussion of using inflation expectations as a policy tool and highlight key frictions to incorporate into theoretical models.

We report the results of an experiment designed to study the role of institutional structure in the formation of bubbles and crashes in laboratory asset markets. In this study, in addition to Call Market and Double Auction, we employ the Tâtonnement trading institution, which has not been previously explored in laboratory asset markets, despite its historical and contemporary relevance. The results show that bubbles are significantly smaller in Tâtonnement than in Double Auction, suggesting that the trading institution plays a crucial role in the formation of bubbles. We provide a heterogeneous agent model with speculators, fundamental and noise traders to better understand these results. For each trading institution, we provide structural estimates of the parameters of the model using experimental data. The model allows us to identify the different types of traders empirically. We find that speculation is more prominent in Double Auction than in other trading institutions. Furthermore, Tâtonnement produces more accurate and less dispersed (among traders) price forecasts towards the end of the experiment, which indicates that Tâtonnement favors more homogenous expectations.

This paper compares the performance of a centralized trading institution, Double Auction (DA), with a decentralized Over-the-Counter (OTC) trading institution in experimental asset markets. Variants of both are commonly used in field financial markets. While bids and asks are publicly displayed in the DA, they are only visible to the parties involved in a trade in the OTC market due to search frictions. We study the impact of these trading institutions on transaction prices, mispricing, trade volume, and bubble measures in controlled laboratory long-lived asset markets. We find that transaction prices, mispricing, trade volume and some bubble measures are significantly lower in OTC than in DA markets, due to reduced trading activities and stronger selling pressures brought about by search frictions.

This paper integrates theory and transaction-level data from China's interbank over-the-counter (OTC) FX market to examine how search frictions affect prices, asset distributions, and welfare. We document that: (1) larger banks face lower transaction costs, decreasing with trade size; (2) easing search frictions increases dispersion in asset holdings; and (3) search frictions distort counterparty selection. These patterns follow naturally from an OTC model with heterogeneous investor search abilities and dealer fixed costs. We calibrate the model to quantify heterogeneous effects of search frictions across investors and perform counterfactual analysis to assess the impact of policies designed to decrease search frictions.

Monetary exchange is called essential when better outcomes become incentive compatible when money is introduced. We study essentiality theoretically and experimentally using finite-horizon monetary models that are naturally suited to the lab. Following mechanism design, we also study the effects of strategy recommendations both when they are incentive compatible and when they are not. Results show that output and welfare are significantly enhanced by fiat currency if monetary equilibrium exists but not otherwise. Also, recommendations help if incentive compatible but not otherwise. Sometimes money gets used when it should not, and we investigate why, using surveys and measures of social preferences.

We develop an experimental framework to investigate the quantity theory of money and the real effects of inflation in an economy where money serves as a medium of exchange. We test the classical view that inflation reduces output and welfare by taxing monetary exchange. Inflation is engineered by constant money growth where newly-issued money is injected in one of three ways: to finance government spending, lump-sum transfers, or proportional transfers. Experimental results largely support theoretical predictions. Higher money growth leads to higher inflation. Output and welfare are significantly lower with government spending, output is significantly lower with lump-sum transfers, while there are no significant real effects with proportional transfers. A deviation from theory is that the detrimental effect of money growth depends on the implementation scheme and is stronger with government spending relative to lump-sum transfers.

Experimental evidence shows that the rational expectations hypothesis fails to characterize the path to equilibrium after an exogenous shock when actions are strategic complements. Under identical shocks, however, repetition allows adaptive learning, so that inertia in adjustment should fade away with experience. If this finding proves to be robust, inertia in adjustment may be irrelevant among experienced agents. The conjecture in the literature is that inertia would still persist, perhaps indefinitely, in the presence of real-world complications such as nonidentical shocks. Herein, we empirically test the conjecture that the inertia in adjustment is more persistent if the shocks are nonidentical. For both identical and nonidentical shocks, we find persistent inertia and similar patterns of adjustment that can be explained by backward-looking expectation rules. Notably, refining these rules with similarity-based learning approach improves their predictive power.

We evaluate the Friedman rule for optimal monetary policy in a laboratory economy based on Lagos-Wright (Journal of Economic Theory 145 (2010), 1508-24). We explore two implementations of Friedman's rule: one involving deflationary monetary policy and another where interest is paid on money. We compare the welfare consequences of the Friedman rule with two other policies: a constant money supply regime and a regime where the money supply grows at a constant k%. Counter to theory, we find that the Friedman rule is not welfare-improving, performing no better than the constant money regime. By one welfare measure, the k% money growth rate regime performs best.

We report on an experiment in which buyers and sellers engage in semi-structured bargaining in two dimensions: how much of a good the seller will produce and how much money the buyer will offer the seller in exchange. Our aim is to evaluate the empirical relevance of two axiomatic bargaining solutions, the generalized Nash bargaining solution and Kalai's proportional bargaining solution. These bargaining solutions predict different outcomes when buyers are constrained in their money holdings. We first use the case when the buyer is not liquidity constrained to estimate the bargaining power parameter, which we find to be equal to 1/2. Then, imposing liquidity constraints on buyers, we find strong evidence in support of the Kalai proportional solution and against the generalized Nash solution. Our findings have policy implications, e.g., for the welfare cost of inflation in search-theoretic models of money.

We develop an experimental framework to investigate the quantity theory of money and the effect of expected inflation on output and welfare based on the Rocheteau and Wright (2005) model of monetary exchange. We compare a laissez-faire policy with a fixed money supply and three policies with constant money growth where newly issued money is used to finance government spending, lump-sum transfers, or proportional transfers, respectively. The experimental results are largely consistent with theory. The quantity theory of money holds and higher money growth leads to higher inflation. Relative to laissez-faire, output and welfare are significantly lower with government spending, output is significantly lower with lump-sum transfers, while there are no significant real effects with proportional transfers. A substantial deviation from theory is that the detrimental effect of money growth depends on the implementation scheme and is weaker with lump-sum transfers relative to government spending. JEL Classification: C92, D83, E40

We compare three implementation schemes of an infinite-horizon monetary economy with discounting. Under the standard random termination scheme and its block variation, the economy lasts for an indefinite number of periods and the discounting factor is captured by the probability the economy continues to the next period. These schemes rely on the belief the experimenter can credibly implement a game that lasts an arbitrarily long time. We also propose a new method that does not rely on such belief. Under this scheme, subjects participate in an experiment for a fixed number of periods where the discount factor is captured by a weighting factor that shrinks payoffs over time. Dynamic incentives are preserved by paying subjects their continuation value based on past market prices. Results show dynamic incentives are preserved and behavior is similar in all three implementations. Researchers may decide among these approaches depending on the research question of interest and more practical concerns, such as the ease of implementation and the need to collect data for multiple supergames when the discount factor is high.

Chinese Interbank Foreign Exchange trading was originally conducted through a centralized, anonymous limit order book (LOB). We determine the impact of the introduction of a parallel decentralized over-the-counter (OTC) market. We find that: (1) most trading migrated to the OTC, (2) the LOB price function is upward-sloping versus the OTC price function is downward-sloping, and (3) the LOB market has a single price function versus the OTC market has multiple price functions. Next, we develop a theoretical model of parallel markets that can simultaneously explain all of these empirical findings. We test a new model prediction and find support.

This paper integrates theory and experiments to explore how policy rules related to government interventions can affect economic allocations and the international status of a currency. Using a two-country, two-currency search model, we study two types of government interventions: (1) legal restrictions impacting a seller's ability to accept a foreign currency, and (2) reductions to the cost a seller must pay to accept a foreign currency. The first intervention can be viewed as a way to capture a decrease in capital controls, while the second can be viewed as a way to explore the impact of reducing information costs associated with using a foreign currency. Our results indicate that abolishing legal restrictions that impact a seller's ability to accept a foreign currency can increase both quantities traded and the number of trades involving two types of currencies. Additionally, the international status of currencies is significantly enhanced when sellers face very low foreign currency acceptance costs.

The research community in experimental economics has been increasingly encouraged to replicate studies and increase the sample size. While these suggestions have strong advantages, they also potentially increase the financial costs associated with data collection and, as a result, hamper the growth of experimental economics and limit the questions that may be addressed using experimental methods. In this paper, we explore the effectiveness of extra credit as a reward medium as it is financially less taxing and readily available to most researchers as an alternative. We focus on experimental asset markets because data is particularly costly to collect for these experiments, e.g., a market consisting of 8-12 traders interacting over 15 trading periods is an independent observation. Our treatment variable is the reward medium, either extra credit or cash. We compare bubble measures in the two treatments and we find that bubbles observed in the extra-credit sessions are not significantly different from bubbles observed in the cash sessions. These results suggest that extra credit is an effective reward medium in experimental asset markets. (C) 2018 Elsevier B.V. All rights reserved.

We explore the celebrated Friedman rule for optimal monetary policy in the context of a laboratory economy based on the Lagos-Wright model. The rule that Friedman proposed can be shown to be optimal in a wide variety of different monetary models, including the Lagos-Wright model. However, we are not aware of any prior empirical evidence evaluating the welfare consequences of the Friedman rule. We explore two implementations of the Friedman rule in the laboratory. The first is based on a deflationary monetary policy where the money supply contracts to offset time discounting. The second implementation pays interest on money removing the private marginal cost from holding money. We explore the welfare consequences of these two theoretically equivalent implementations of the Friedman Rule and compare results with two other policy regimes, a constant money supply regime and another regime advocated by Friedman, where the supply of money grows at a constant k-percent rate. We find that, counter to theory, the Friedman rule is not welfare improving, performing no better than a constant money regime. By one welfare measure, we find that the k-percent money growth rate regime performs best.

A growing literature in experimental economics examines the conditions under which cooperation can be sustained in social-dilemma settings. In particular, several recent studies contrast cooperation levels in games in which the number of decision rounds is probabilistic to games in which the number of decision rounds is finite. We contribute to this literature by contrasting the evolution of cooperation in probabilistically and finitely repeated linear voluntary-contribution public-goods games (VCM). Consistent with past results, ceteris paribus, cooperation is found to increase in the marginal value of the public good. Additionally, as the number of decision sequences increases, there is a pronounced decrease in cooperation in the final round of finite sequences compared to those with a probabilistic end round. We do not, however, find consistent evidence that overall cooperation rates are affected by whether the number of decision rounds is finite or determined probabilistically.

We propose a heterogeneous agent model for experimental closed-book call markets with speculators, fundamental and noise traders. We provide structural estimates of the parameters of the model using new experimental data, which allow us to track individual behavior, cognitive reflection abilities, and accuracy of price forecasts. Based on the model's predictions for individual behavior we identify different types of traders in the data. We find that fundamental traders and speculators have higher terminal wealth and perform better on a cognitive reflection test and price forecasting than noise traders. More importantly, we find that all three types of traders are important to understand the mechanics of bubbles and crashes. In the initial period, fundamental traders buy from noise traders. Next, speculators buy from fundamental traders during the boom. Finally, speculators generate the crash by selling to noise traders. Our model predicts smaller bubbles if the cash and asset endowments are higher, keeping the cash-to-asset ratio constant. Our theory has predictive power as we confirm this prediction with additional out-of-sample data.