Heemeijer, P. () (Universiteit van Amsterdam) Hommes, C.H. (Universiteit van Amsterdam) Sonnemans, J. (Universiteit van Amsterdam) Tuinstra, J. () (Universiteit van Amsterdam)
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We analyse the results of an experiment on expectation formation carried out last year (i.e., 2003) in the CREED laboratory in Amsterdam. The experiment involved 78 participants, who were asked to predict prices in artificial single-good economies, and were paid according to their accuracy in doing so. Thirteen markets, with six subjects each, were created, in two different treatments. The first treatment concerns a Cobweb-like commodity market with supply-driven expectations feedback. The second treatment concerns a speculative asset market with demanddriven expectations feedback. In the first treatment price fluctuations are relatively stable, quickly converging to the Rational Expectations fundamental value. In the second treatment prices do not converge quickly, but tend to display a slow oscillation around the fundamental price. An important factor in generating these differences is shown to be the strong coordination of price predictions among participants. This suggests a large degree of homogeneity in the expectation rules applied by the participants, which was confirmed by explicitly fitting the individual predictions to a linear adaptive autoregressive specification.
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Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number
04-15.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:ams:ndfwpp:04-15
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