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Learning through passive participation in asset market bubbles

Author

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  • Timothy N. Cason

    (Purdue University)

  • Anya Samek

    (University of Southern California)

Abstract

We report a laboratory experiment that investigates the impact of passive participation on bubble formation in asset markets with inexperienced and experienced traders. Some treatments employ pre-market training in which each participant is ‘matched’ with a trader from a different prior market and observes all trading details but does not directly participate in trading. We find that passive participation, similar to direct experience, significantly reduces mispricing in subsequent markets. This finding suggests that observation of prices is a key mechanism through which experience mitigates bubbles. We also vary whether transaction prices are displayed in a column of text or in a graphical display, and find that among inexperienced and once-experienced traders, markets with the tabular display result in bubbles that are greater in amplitude relative to markets with the graphical display.

Suggested Citation

  • Timothy N. Cason & Anya Samek, 2015. "Learning through passive participation in asset market bubbles," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 1(2), pages 170-181, December.
    • Handle: RePEc:spr:jesaex:v:1:y:2015:i:2:d:10.1007_s40881-015-0013-3
    DOI: 10.1007/s40881-015-0013-3
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    Cited by:

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    3. Zhengyang Bao & Andreas Leibbrandt & ple391, 2019. "Thar she resurges: The case of assets that lack positive fundamental value," Monash Economics Working Papers 12-19, Monash University, Department of Economics.
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    6. Wright, William C.C. & Eppink, Florian V. & Greenhalgh, Suzie, 2017. "Are ecosystem service studies presenting the right information for decision making?," Ecosystem Services, Elsevier, vol. 25(C), pages 128-139.
    7. Owen Powell & Natalia Shestakova, 2017. "The robustness of mispricing results in experimental asset markets," Vienna Economics Papers 1702, University of Vienna, Department of Economics.
    8. Laura Hueber & Rene Schwaiger, 2021. "Debiasing Through Experience Sampling: The Case of Myopic Loss Aversion," Working Papers 2021-01, Faculty of Economics and Statistics, Universität Innsbruck.
    9. Owen Powell & Natalia Shestakova, 2017. "The robustness of mispricing results in experimental asset markets," Vienna Economics Papers vie1702, University of Vienna, Department of Economics.
    10. Bao, Zhengyang & Kalaycı, Kenan & Leibbrandt, Andreas & Oyarzun, Carlos, 2020. "Do regulations work? A comprehensive analysis of price limits and trading restrictions in experimental asset markets with deterministic and stochastic fundamental values," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 59-84.
    11. Bradbury, Meike A.S. & Hens, Thorsten & Zeisberger, Stefan, 2019. "How persistent are the effects of experience sampling on investor behavior?," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 61-79.

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