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The Bond Model: A Laboratory Experiment into the Demand for Money

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  • Ansic, David

Abstract

This paper describes a pilot experiment investigating individual demand for money (cash), when investors are confronted with a two asset, risky price decision model. The price of one asset (bonds) varies randomly over time, while the other asset (cash) may be held for transaction and speculative purposes. Results show that the Ansic-Hey-Loomes bond model provides useful predictions of the risk-averse and risk-neutral investor's demand for money (cash) under the constraints specified by the model. The subject sample provided very little evidence to support the notion that investors prefer to engage in risk-free strategies (dividend strategies), even when optimum risk-averse strategies have lower payoffs. In this experiment subjects demonstrated a significant reaction to market risk, by reducing volumes of trade as price risk increased. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Ansic, David, 1994. "The Bond Model: A Laboratory Experiment into the Demand for Money," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(3), pages 275-295, September.
    • Handle: RePEc:bla:manch2:v:62:y:1994:i:3:p:275-95
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