Foreword by Vernon L. Smith. An introduction from the winner of the 2002
Nobel Memorial Prize in Economic Science for his pioneering work in experimental
economics.
Preface. Why Wall Street needs paving and how
experimental methods can help do the job.
Chronology of Major Events. Starts with Galileo writing
about dropping balls from the Tower of Pisa in 1604 and ends with
California's rolling blackouts in 2001.
Part I: BUBBLES AND EXPERIMENTS
Chapter 1: Wind Tunnel Markets. Engineers test their
inventions by placing them in a wind tunnel, why can't economists do the same thing with
markets?
Chapter 2: Bargain Hunting. How John von Neumann and John Nash's ideas
about game theory naturally lead to the first market experiment conducted
by Professor
Edward Chamberlin in his Harvard classroom.
Chapter 3: A Tale of Two Smiths. Vernon Smith shows that
Adam Smith's vision of a perfect market can be observed in the laboratory.
Chapter 4: Bubbles in the Lab. Experimental economics comes of age in the
1980s with
development of laboratory asset markets and the creation of bubbles that can be
replicated at will.
Chapter 5: Bubbles in the Wild. What we learn in the
laboratory tells us about stock market and other asset bubbles, including the
Nasdaq/Internet bubble of the late 1990s.
Part II: INSIDE MARKETS: OPTIONS, INFORMATION, AND LIQUIDITY.
Chapter 6: Black Monday. The role of portfolio insurance
in the October 1987 stock market crash shows the importance of options,
information and liquidity to the smooth operation of the market mechanism.
Chapter 7: All the World's an Option. A tour of all the ways that options
pervade every corner of the financial markets.
Chapter 8: The Invisible Hand Discovers Prices. How
markets discover prices and what this means for the design of the auction
mechanisms used for everything from eBay to the floor of the New York Stock
Exchange.
Chapter 9: Sending Signals and Keeping Score. The
importance of information in the market's operations and how lemons, the
winner's curse, and other informational asymmetries can affect market performance.
Chapter 10: It All Comes Down to Money. A look at money:
the greatest mystery in economics and the ultimate source of liquidity.
Part III: GRIDLOCK AND THE ROAD TO SMART MARKETS.
Chapter 11: The Market is Tied Up in Knots. In August
1998, Long-Term Capital Management brings on global financial gridlock.
Chapter 12: Making Markets Intelligent. How to design
markets to avoid gridlock and wring out the much of the inefficiency
exploited by hedge funds and other arbitrageurs.
Chapter 13: The Smart Auction Block. A look at the first
generation of smart markets from NASA's space station to the FCC's spectrum
auctions.
Chapter 14: Good Intentions. Perfect markets in a
politically and legally imperfect world.
