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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)

Abstract

This discussion paper resulted in a publication in the 'Journal of Economic Psychology' , 31(6), 964-84. 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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Bibliographic Info

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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Web page: http://www.tinbergen.nl

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

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References

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Citations

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Cited by:
  1. Bottazzi, Giulio & Devetag, Giovanna & Pancotto, Francesca, 2011. "Does volatility matter? Expectations of price return and variability in an asset pricing experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 124-146, February.
  2. Te Bao & Cars Hommes & Joep Sonnemans & Jan Tuinstra, 2012. "Individual Expectations, Limited Rationality and Aggregate Outcomes," Tinbergen Institute Discussion Papers 12-016/1, Tinbergen Institute.
  3. Bao, Te & Hommes, Cars & Sonnemans, Joep & Tuinstra, Jan, 2012. "Individual expectations, limited rationality and aggregate outcomes," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1101-1120.
  4. Heemeijer Peter & Hommes Cars & Sonnemans Joep & Tuinstra Jan, 2012. "An Experimental Study on Expectations and Learning in Overlapping Generations Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(4), pages 1-49, October.
  5. John Duffy & Te Bao, 2013. "Adaptive vs. Eductive Learning: Theory and Evidence," Working Papers 518, University of Pittsburgh, Department of Economics, revised Dec 2013.

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