Price Bubbles with Discounting: A Web-Based Classroom Experiment
The authors describe a Web-based classroom experiment with two assets: cash and a stock that pays a random dividend. The interest rate on cash, coupled with a well-chosen final redemption value for the stock, induces a flat trajectory for the fundamental value of the stock. However, prices typically rise above this value during a session. The bubbles and crashes that occur in this experiment can stimulate a discussion of asset valuation, discounting, and pricing patterns that are determined by expectations and "animal spirits."
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Volume (Year): 40 (2009)
Issue (Month): 1 (January)
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