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Experience Does Not Eliminate Bubbles: Experimental Evidence

Author

Listed:
  • Anita Kopányi-Peuker
  • Matthias Weber
  • Lauren Cohen

Abstract

We study the role of investor experience in the formation of asset price bubbles. We conduct a call market experiment in which participants trade assets with each other and a learning-to-forecast experiment in which participants only forecast future prices (while trade based on these forecasts is computerized). Each experiment comprises three treatments varying the information that participants receive about the fundamental value. Each experimental market is repeated three times. Throughout, we observe sizable bubbles that persist despite participant experience. Our findings in the call market experiment contrast with those in the literature. Our findings in the learning-to-forecast experiment are novel.

Suggested Citation

  • Anita Kopányi-Peuker & Matthias Weber & Lauren Cohen, 2021. "Experience Does Not Eliminate Bubbles: Experimental Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4450-4485.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:9:p:4450-4485.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa121
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    1. repec:osf:socarx:5ju7z_v1 is not listed on IDEAS
    2. Cars Hommes & Anita Kopányi-Peuker & Joep Sonnemans, 2021. "Bubbles, crashes and information contagion in large-group asset market experiments," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 414-433, June.
    3. Evans, George W. & Hommes, Cars & McGough, Bruce & Salle, Isabelle, 2022. "Are long-horizon expectations (de-)stabilizing? Theory and experiments," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 44-63.
    4. Bao, Te & Corgnet, Brice & Hanaki, Nobuyuki & Riyanto, Yohanes E. & Zhu, Jiahua, 2023. "Predicting the unpredictable: New experimental evidence on forecasting random walks," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    5. Tucker, Steven & Xu, Yilong, 2024. "Nonspeculative bubbles revisited," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    6. Heinke, Steve & Olschewski, Sebastian & Rieskamp, Jörg, 2024. "Experiences, demand for risky investments, and implications for price dynamics," Journal of Behavioral and Experimental Finance, Elsevier, vol. 43(C).
    7. Yang, Xiaolan & Wang, Jiaqi & Chen, Shu, 2024. "Impacts of CEO-employee pay disparity on investor behavior and market dynamics: Evidence from laboratory asset markets," China Economic Review, Elsevier, vol. 88(C).
    8. John Duffy & Janet Hua Jiang & Huan Xie, 2024. "Pricing Indefinitely Lived Assets: Experimental Evidence," Management Science, INFORMS, vol. 70(12), pages 8772-8790, December.
    9. Bulutay, Muhammed & Cornand, Camille & Zylbersztejn, Adam, 2022. "Learning to deal with repeated shocks under strategic complementarity: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1318-1343.
    10. Bao, Te & Hommes, Cars & Pei, Jiaoying, 2021. "Expectation formation in finance and macroeconomics: A review of new experimental evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    11. Anufriev, Mikhail & Chernulich, Aleksei & Tuinstra, Jan, 2022. "Asset price volatility and investment horizons: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 19-48.
    12. Matthias Weber & John Duffy & Arthur Schram, 2019. "Credit Default Swap Regulation in Experimental Bond Markets," Working Papers on Finance 1905, University of St. Gallen, School of Finance.
    13. Weber, Matthias & Duffy, John & Schram, Arthur, 2024. "Regulation and the demand for credit default swaps in experimental bond markets," European Economic Review, Elsevier, vol. 165(C).
    14. Mikhail Anufriev & Frieder Neunhoeffer & Jan Tuinstra, 2024. "Time pressure reduces financial bubbles: Evidence from a forecasting experiment," Working Papers REM 2024/0351, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    15. Weber, Matthias, 2019. "Behavioral Optimal Taxation: The Case of Aspirations," SocArXiv fpnw6, Center for Open Science.
    16. Alejandro Lopez-Lira, 2025. "Can Large Language Models Trade? Testing Financial Theories with LLM Agents in Market Simulations," Papers 2504.10789, arXiv.org.
    17. Roger, Tristan & Roger, Patrick & Willinger, Marc, 2022. "Number sense, trading decisions and mispricing: An experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 135(C).
    18. Guler, Bulent & Lugovskyy, Volodymyr & Puzzello, Daniela & Tucker, Steven, 2025. "Trading institutions in experimental asset markets: Theory and Evidence," European Economic Review, Elsevier, vol. 180(C).
    19. Weber, Matthias, 2022. "From Individual Human Decisions to Economic and Financial Policies," SocArXiv 5ju7z, Center for Open Science.
    20. Petersen, Luba & Rholes, Ryan, 2022. "Macroeconomic expectations, central bank communication, and background uncertainty: A COVID-19 laboratory experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    21. Nobuyuki Hanaki & Cars Hommes & Dávid Kopányi & Anita Kopányi-Peuker & Jan Tuinstra, 2023. "Forecasting returns instead of prices exacerbates financial bubbles," Experimental Economics, Springer;Economic Science Association, vol. 26(5), pages 1185-1213, November.
    22. Kopányi, Dávid & Rabanal, Jean Paul & Rud, Olga A. & Tuinstra, Jan, 2019. "Can competition between forecasters stabilize asset prices in learning to forecast experiments?," Journal of Economic Dynamics and Control, Elsevier, vol. 109(C).
    23. Kopányi-Peuker, Anita & Weber, Matthias, 2024. "The role of the end time in experimental asset markets," Journal of Corporate Finance, Elsevier, vol. 88(C).
    24. Matthias Weber, 2021. "Behavioral optimal taxation: Aspirations," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 5(1), pages 19-26, Septembre.

    More about this item

    JEL classification:

    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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