Intrinsically Worthless Objects as Media of Exchange: Experimental Evidence*

Abstract

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.

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