Designing auction institutions for exchange

In this paper we present a dialogue between game theory and laboratory/field experiments using a number of examples from the economic systems design literature. We observe that neither game theory nor laboratory experimentation is sufficient for economic design. Instead, what seems to be critical is the ability of each to inform the other. We discuss the rapid emergence of ‘smart’ markets which are being engineered to extract the gains from exchange in increasingly complex resource allocation environments. We describe some of the desirable properties of these markets.