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Positive expectations feedback experiments and number guessing games as models of financial markets

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  • Sonnemans, Joep
  • Tuinstra, Jan

Abstract

In repeated number guessing games choices typically converge quickly to the Nash equilibrium. In positive expectations feedback experiments, however, convergence to the equilibrium price tends to be very slow, if it occurs at all. Both types of experimental designs have been suggested as modeling essential aspects of financial markets. In order to isolate the source of the differences in outcomes we present several new experiments in this paper. We conclude that the feedback strength (i.e. the 'p-value' in standard number guessing games) is essential for the results.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 31 (2010)
Issue (Month): 6 (December)
Pages: 964-984

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Handle: RePEc:eee:joepsy:v:31:y:2010:i:6:p:964-984

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Keywords: Behavioral finance Number guessing game Beauty contest game Expectations feedback systems;

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Citations

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Cited by:
  1. Heemeijer Peter & Hommes Cars & Sonnemans Joep & Tuinstra Jan, 2012. "An Experimental Study on Expectations and Learning in Overlapping Generations Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(4), pages 1-49, October.
  2. Te Bao & Cars Hommes & Joep Sonnemans & Jan Tuinstra, 2012. "Individual Expectations, Limited Rationality and Aggregate Outcomes," Tinbergen Institute Discussion Papers 12-016/1, Tinbergen Institute.
  3. Giulio Bottazzi & Giovanna Devetag & Francesca Pancotto, 2008. "Does Volatility matter? Expectations of price return and variability in an asset pricing experiment," CEEL Working Papers 0801, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
  4. John Duffy & Te Bao, 2013. "Adaptive vs. Eductive Learning: Theory and Evidence," Working Papers 518, University of Pittsburgh, Department of Economics, revised Dec 2013.
  5. Bao, Te & Hommes, Cars & Sonnemans, Joep & Tuinstra, Jan, 2012. "Individual expectations, limited rationality and aggregate outcomes," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1101-1120.

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