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Boundaries of the Tournament Pricing Effect in Asset Markets: Evidence from Experimental Markets

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  • R. Mark Isaac

    ()
    (Department of Economics, Bellamy Building, Florida State University)

  • Duncan James

    ()
    (Department of Economics, Dealy Hall, Fordham University)

Abstract

Tournament compensation of asset traders has been shown to promote deconvergence from intrinsic value pricing in an experimental asset market where all traders are so compensated (James and Isaac 2000). This paper explores the extent of this effect as experimental design parameters—proportion of traders facing tournament compensation, details of the tournament contract, and time horizon of the asset being traded—are varied. We find that the original results are replicated using the original parameters, that a tournament contract modified to provide a penalty for underperformance does not necessarily eliminate the effect, and that reducing the proportion of traders facing tournament compensation to half the market largely eliminates the effect.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 69 (2003)
Issue (Month): 4 (April)
Pages: 936-951

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Handle: RePEc:sej:ancoec:v:69:4:y:2003:p:936-951

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Stéphane Robin & Katerina Straznicka & Marie-Claire Villeval, 2012. "Bubbles and Incentives : An Experiment on Asset Markets," Working Papers halshs-00768434, HAL.
  2. Cheung, Stephen L. & Coleman, Andrew, 2012. "League-Table Incentives and Price Bubbles in Experimental Asset Markets," Working Papers 2012-13, University of Sydney, School of Economics.
  3. Berlemann, Michael & Vöpel, Henning, 2012. "Tournament incentives and asset price bubbles: Evidence from a field experiment," Economics Letters, Elsevier, vol. 115(2), pages 232-235.

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