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It is Not Just Confusion! Strategic Uncertainty in an Experimental Asset Market

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Abstract

To what extent is the observed mis-pricing in experimental asset markets caused by strategic uncertainty (SU) and by individual bounded rationality (IBR)? We address this question by comparing subjects initial price forecasts in two market environments – one with six human traders, and the other with one human and five computer traders. We find that both SU and IBR account equally for the median initial forecasts deviation from the fundamental values. The effect of SU is greater for subjects with a perfect score in the Cognitive Reflection Test, and it is not significant for those with low scores.

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File URL: http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2013_-_nr_40.pdf
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Bibliographic Info

Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1340.

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Length: 33 pages
Date of creation: 08 Aug 2013
Date of revision: 08 Aug 2013
Handle: RePEc:aim:wpaimx:1340

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Web page: http://www.amse-aixmarseille.fr/en
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Keywords: Bounded rationality; Strategic uncertainty; Experiment; Asset markets; Computer traders; Cognitive Re?ection Test;

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Cited by:
  1. John Duffy & Te Bao, 2013. "Adaptive vs. Eductive Learning: Theory and Evidence," Working Papers, University of Pittsburgh, Department of Economics 518, University of Pittsburgh, Department of Economics, revised Dec 2013.
  2. Cheung, Stephen L. & Hedegaard, Morten & Palan, Stefan, 2014. "To see is to believe: Common expectations in experimental asset markets," European Economic Review, Elsevier, Elsevier, vol. 66(C), pages 84-96.

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