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Cash versus extra-credit incentives in experimental asset markets

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Listed:
  • Ding, Shuze
  • Lugovskyy, Volodymyr
  • Puzzello, Daniela
  • Tucker, Steven
  • Williams, Arlington

Abstract

The research community in experimental economics has been increasingly encouraged to replicate studies and increase the sample size. While these suggestions have strong advantages, they also potentially increase the financial costs associated with data collection and, as a result, hamper the growth of experimental economics and limit the questions that may be addressed using experimental methods. In this paper, we explore the effectiveness of extra credit as a reward medium as it is financially less taxing and readily available to most researchers as an alternative. We focus on experimental asset markets because data is particularly costly to collect for these experiments, e.g., a market consisting of 8–12 traders interacting over 15 trading periods is an independent observation. Our treatment variable is the reward medium, either extra credit or cash. We compare bubble measures in the two treatments and we find that bubbles observed in the extra-credit sessions are not significantly different from bubbles observed in the cash sessions. These results suggest that extra credit is an effective reward medium in experimental asset markets.

Suggested Citation

  • Ding, Shuze & Lugovskyy, Volodymyr & Puzzello, Daniela & Tucker, Steven & Williams, Arlington, 2018. "Cash versus extra-credit incentives in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 19-27.
  • Handle: RePEc:eee:jeborg:v:150:y:2018:i:c:p:19-27
    DOI: 10.1016/j.jebo.2018.03.014
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    Keywords

    Reward medium; Experimental asset markets; Bubbles;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G00 - Financial Economics - - General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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