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Super-exponential bubbles in lab experiments: evidence for anchoring over-optimistic expectations on price

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  • Andreas H\"usler
  • Didier Sornette
  • Cars H. Hommes

Abstract

We analyze a controlled price formation experiment in the laboratory that shows evidence for bubbles. We calibrate two models that demonstrate with high statistical significance that these laboratory bubbles have a tendency to grow faster than exponential due to positive feedback. We show that the positive feedback operates by traders continuously upgrading their over-optimistic expectations of future returns based on past prices rather than on realized returns.

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File URL: http://arxiv.org/pdf/1205.0635
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Paper provided by arXiv.org in its series Papers with number 1205.0635.

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Date of creation: May 2012
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Handle: RePEc:arx:papers:1205.0635

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  25. Anufriev, M. & Hommes, C.H., 2009. "Evolutionary Selection of Individual Expectations and Aggregate Outcomes," CeNDEF Working Papers 09-09, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  26. Ernan Haruvy & Charles N. Noussair, 2006. "The Effect of Short Selling on Bubbles and Crashes in Experimental Spot Asset Markets," Journal of Finance, American Finance Association, vol. 61(3), pages 1119-1157, 06.
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