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Advice and Fictive Learning: The Pricing of Assets in the Laboratory

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  • Jonathan E. Alevy

    ()
    (Department of Economics, University of Alaska Anchorage)

  • Michael K. Price

    ()
    (Department of Economics, Georgia State University)

Abstract

A burgeoning literature in the neurosciences suggests that individuals modify their behavior not only in response to their own experiences, but also from what they learn about the experiences of others engaged in similar tasks. Importantly, these different forms of learning are associated with common neurological processes. We explore whether others’ advice provides a fictive learning signal that substitutes for one’s own experience. We examine this question in an environment where inexperienced traders frequently perform poorly – an experimental asset market. Prices in sessions with advice tend towards fundamentals mitigating the severity of price bubbles. Further, advice allays behaviors shown to yield bubbles in prior studies. Taken jointly, our data suggest that advice triggers fictive learning which helps agents avoid the “mistakes” made by naïve counterparts.

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File URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201207.pdf
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Bibliographic Info

Paper provided by University of Alaska Anchorage, Department of Economics in its series Working Papers with number 2012-07.

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Date of creation: Dec 2012
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Handle: RePEc:ala:wpaper:2012-07

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Web page: http://www.cbpp.uaa.alaska.edu/CBPPHome/DepartmentsandMajors/Economics.aspx
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Keywords: asset pricing; laboratory experiments; advice;

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  1. Vivian Lei & Filip Vesely, 2009. "Market Efficiency: Evidence From A No-Bubble Asset Market Experiment," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 14(2), pages 246-258, 05.
  2. Noussair, C.N. & Lei , V. & Plott, C., 2001. "Non-speculative bubbles in experimental asset markets: Lack of common knowledge of rationality vs. actual irrationality," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-381105, Tilburg University.
  3. John List, 2004. "Neoclassical theory versus prospect theory: Evidence from the marketplace," Framed Field Experiments, The Field Experiments Website 00174, The Field Experiments Website.
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  7. Cheung, Stephen L. & Hedegaard, Morten & Palan, Stefan, 2012. "To See Is To Believe: Common Expectations In Experimental Asset Markets," Working Papers, University of Sydney, School of Economics 2012-10, University of Sydney, School of Economics.
  8. John List & Michael Price, 2005. "Conspiracies and secret price discounts in the marketplace: Evidence from field experiments," Framed Field Experiments, The Field Experiments Website 00115, The Field Experiments Website.
  9. Locke, Peter R. & Mann, Steven C., 2005. "Professional trader discipline and trade disposition," Journal of Financial Economics, Elsevier, Elsevier, vol. 76(2), pages 401-444, May.
  10. Jürgen Huber & Michael Kirchler, 2012. "The impact of instructions and procedure on reducing confusion and bubbles in experimental asset markets," Experimental Economics, Springer, Springer, vol. 15(1), pages 89-105, March.
  11. Mizrach, Bruce & Weerts, Susan, 2009. "Experts online: An analysis of trading activity in a public Internet chat room," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 70(1-2), pages 266-281, May.
  12. John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments, The Field Experiments Website 00297, The Field Experiments Website.
  13. James C. Cox & J. Todd Swarthout, . "EconPort: Creating and Maintaining a Knowledge Commons," Experimental Economics Center Working Paper Series, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University 2006-06, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  14. Werner Antweiler & Murray Z. Frank, 2004. "Is All That Talk Just Noise? The Information Content of Internet Stock Message Boards," Journal of Finance, American Finance Association, American Finance Association, vol. 59(3), pages 1259-1294, 06.
  15. Martin Dufwenberg & Tobias Lindqvist & Evan Moore, 2005. "Bubbles and Experience: An Experiment," American Economic Review, American Economic Association, American Economic Association, vol. 95(5), pages 1731-1737, December.
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