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Positive Expectations Feedback Experiments and Number Guessing Games as Models of Financial Markets

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Author Info
Joep Sonnemans () (University of Amsterdam)
Jan Tuinstra () (University of Amsterdam)

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Abstract

In repeated number guessing games choices typically converge quickly to the Nash equilibrium. In positive expectations feedback experiments, however, convergence to the equilibrium price tends to be very slow, if it occurs at all. Both types of experimental designs have been suggested as modeling essential aspects of financial markets. In order to isolate the source of the differences in outcomes we present several new treatments in this paper. We conclude that the feedback strength (i.e. the ‘p-value’ in standard number guessing games) is essential for the results. Furthermore, positive expectations feedback experiments may provide good representations of highly speculative markets while standard number guessing games model financial markets with more emphasis on dividend yield and value stocks.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-076/1.

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Date of creation: 27 Aug 2008
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Handle: RePEc:dgr:uvatin:20080076

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Related research
Keywords: number guessing game; beauty contest game; expectations feedback systems;

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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