Forming price expectations in positive and negative feedback systems
AbstractWe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 04-15.
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
Web page: http://www.fee.uva.nl/cendef/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giulio Bottazzi & Maria Giovanna Devetag, 2003.
"Expectations Structure in Asset Pricing Experiments,"
LEM Papers Series
2003/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Giulio Bottazzi & Giovanna Devetag, 2003. "Expectations Structure in Asset Pricing Experiments," ROCK Working Papers 022, Department of Computer and Management Sciences, University of Trento, Italy, revised 12 Jun 2008.
- Giulio Bottazzi & Giovanna Devetag, 2005. "Expectations structure in asset pricing experiments," CEEL Working Papers 0503, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
- Lei, V. & Noussair, C. & Plott, C.R., 1998.
"Non-Speculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality Vs. Actual Irrationality,"
Purdue University Economics Working Papers
1120, Purdue University, Department of Economics.
- Lei, Vivian & Noussair, Charles N & Plott, Charles R, 2001. "Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality," Econometrica, Econometric Society, vol. 69(4), pages 831-59, July.
- 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 urn:nbn:nl:ui:12-381105, Tilburg University.
- Johannes Leitner & Robert Schmidt, 2007. "Expectation formation in an experimental foreign exchange market," Central European Journal of Operations Research, Springer, vol. 15(2), pages 167-184, June.
- Branch, William A., 2007. "Sticky information and model uncertainty in survey data on inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 245-276, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cees C.G. Diks).
If references are entirely missing, you can add them using this form.