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Irrationality and beliefs in a laboratory asset market: Is it me or is it you?

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  • Ackert, Lucy F.
  • Kluger, Brian D.
  • Qi, Li

Abstract

This paper reports on an experiment designed to examine individual and market outcomes with a mixture of rational and non-rational traders. Using values elicited via auctions, we measure a specific form of irrationality: the tendency to overweight high payoff, low probability events, or probability judgment error. Subjects are classified by their tendency to exhibit errors, as well as their beliefs regarding whether others will make errors. Subjects then participate in a series of double auction markets. The results indicate that both probability judgment error and beliefs about other subjects’ susceptibility to probability judgment error have significant impact on individual and market outcomes.

Suggested Citation

  • Ackert, Lucy F. & Kluger, Brian D. & Qi, Li, 2012. "Irrationality and beliefs in a laboratory asset market: Is it me or is it you?," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 278-291.
  • Handle: RePEc:eee:jeborg:v:84:y:2012:i:1:p:278-291
    DOI: 10.1016/j.jebo.2012.03.014
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    References listed on IDEAS

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    Cited by:

    1. Stefan Palan, 2014. "A Software for Asset Market Experiments," Working Paper Series, Social and Economic Sciences 2014-01, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    2. Cueva, Carlos & Rustichini, Aldo, 2015. "Is financial instability male-driven? Gender and cognitive skills in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 330-344.
    3. 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.

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    More about this item

    Keywords

    Irrationality; Probability Judgment error; Asset price bubbles;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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