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To See Is To Believe: Common Expectations in Experimental Asset Markets

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  • Cheung, Stephen L.

    ()
    (University of Sydney)

  • Hedegaard, Morten

    ()
    (University of Copenhagen)

  • Palan, Stefan

    ()
    (University of Graz)

Abstract

We challenge the recent claim that mispricing in the experimental asset markets introduced by Smith, Suchanek, and Williams (1988) is merely an artefact of confusion over declining fundamental value, and can be eliminated through appropriate training. We instead propose that when training is public knowledge, it reduces uncertainty over the behavior of others and facilitates the formation of common expectations. We disentangle the effect of training from the effect of its public knowledge, and find that when all subjects are trained to understand fundamental value, but this is not public knowledge, mispricing is as great as when training is absent.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6922.

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Length: 28 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6922

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Keywords: price bubbles; common knowledge of rationality; asset market experiment;

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References

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Citations

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Cited by:
  1. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2013. "It is Not Just Confusion! Strategic Uncertainty in an Experimental Asset Market," Working Papers halshs-00854513, HAL.
  2. Sascha Füllbrunn & Tibor Neugebauer, 2012. "Margin Trading Bans in Experimental Asset Markets," Jena Economic Research Papers 2012-058, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Jonathan E. Alevy & Michael K. Price, 2012. "Advice and Fictive Learning: The Pricing of Assets in the Laboratory," Working Papers 2012-07, University of Alaska Anchorage, Department of Economics.
  4. Stéphane Robin & Katerina Straznicka & Marie-Claire Villeval, 2012. "Bubbles and Incentives : An Experiment on Asset Markets," Working Papers halshs-00768434, HAL.
  5. Fischbacher, Urs & Hens, Thorsten & Zeisberger, Stefan, 2013. "The impact of monetary policy on stock market bubbles and trading behavior: Evidence from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 37(10), pages 2104-2122.
  6. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2013. "How Do Experienced Traders Respond to Inflows of Inexperienced Traders? An Experimental Analysis," AMSE Working Papers 1359, Aix-Marseille School of Economics, Marseille, France, revised 18 Dec 2013.
  7. Stefan Palan, 2013. "A Review of Research into Smith, Suchanek and Williams Markets," Working Paper Series, Social and Economic Sciences 2013-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
  8. Kleinlercher, Daniel & Huber, Jürgen & Kirchler, Michael, 2014. "The impact of different incentive schemes on asset prices," European Economic Review, Elsevier, vol. 68(C), pages 137-150.

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