Unleashing Animal Spirits: Self-Control and Overpricing in Experimental Asset Markets

One explanation for overpricing on asset markets is a lack of traders’ self-control. We implement the first experiment to address the causal relationship between self-control and systematic overpricing on financial markets. Our setup detects some of the channels through which low individual self-control could transmit into irrational exuberance in markets. Our data indicate a large direct effect of reduced self-control on market overpricing. Low self-control traders report stronger emotions after the market. Received February 13, 2017; editorial decision August 29, 2018 by Editor Wei Jiang. Authors have furnished supplementary data and an Internet Appendix, which are available on the Oxford University Press Web site next to the link to the final published paper online.