Price expectations in the laboratory in positive and negative feedback systems
AbstractWe analyse the results of a laboratory experiment on expectation formation. Participants were asked to predict prices in an artificial single-good economy, and were paid according to their forecasting accuracy. 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 Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 165.
Date of creation: 11 Nov 2005
Date of revision:
experimental economics; expectation formation; feedback;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
This paper has been announced in the following NEP Reports:
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.:
- William A. Brock & Cars H. Hommes, 1997.
"A Rational Route to Randomness,"
Econometric Society, vol. 65(5), pages 1059-1096, September.
- Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-51, September.
- 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.
- 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 & 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, 2005. "Expectations structure in asset pricing experiments," CEEL Working Papers 0503, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
- Schmalensee, Richard, 1976. "An Experimental Study of Expectation Formation," Econometrica, Econometric Society, vol. 44(1), pages 17-41, January.
- Michael W.M. Roos & Wolfgang J. Luhan, 2008. "Are Expectations Formed by the Anchoring-and-adjustment Heuristic? – An Experimental Investigation," Ruhr Economic Papers 0054, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Michael W.M. Roos & Wolfgang J. Luhan, 2008. "As if or What? – Expectations and Optimization in a Simple Macroeconomic Environment," Ruhr Economic Papers 0055, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.