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(A)symmetric information bubbles: Experimental evidence

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  • Asako, Yasushi
  • Funaki, Yukihiko
  • Ueda, Kozo
  • Uto, Nobuyuki

Abstract

Asymmetric information has explained the existence of a bubble in extant theoretical models. This study experimentally analyzes traders’ choices with and without asymmetric information based on the riding-bubble model. We show that traders tend to hold a bubble asset for longer, thereby expanding the bubble in a market with symmetric, rather than asymmetric, information. However, when traders are more experienced, the size of the bubble decreases, in which case bubbles do not arise with symmetric information. By contrast, the size of the bubble is stable in a market with asymmetric information.

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  • Asako, Yasushi & Funaki, Yukihiko & Ueda, Kozo & Uto, Nobuyuki, 2020. "(A)symmetric information bubbles: Experimental evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:dyncon:v:110:y:2020:i:c:s0165188919301435
    DOI: 10.1016/j.jedc.2019.103744
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    More about this item

    Keywords

    Riding bubbles; Crashes; Asymmetric information; Experiment; Clock game;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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