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Advice and Fictive Learning: The Pricing of Assets in the Laboratory

  • Jonathan E. Alevy

    ()

    (Department of Economics, University of Alaska Anchorage)

  • Michael K. Price

    ()

    (Department of Economics, Georgia State University)

A burgeoning literature in the neurosciences suggests that individuals modify their behavior not only in response to their own experiences, but also from what they learn about the experiences of others engaged in similar tasks. Importantly, these different forms of learning are associated with common neurological processes. We explore whether others’ advice provides a fictive learning signal that substitutes for one’s own experience. We examine this question in an environment where inexperienced traders frequently perform poorly – an experimental asset market. Prices in sessions with advice tend towards fundamentals mitigating the severity of price bubbles. Further, advice allays behaviors shown to yield bubbles in prior studies. Taken jointly, our data suggest that advice triggers fictive learning which helps agents avoid the “mistakes” made by naïve counterparts.

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File URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201207.pdf
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Paper provided by University of Alaska Anchorage, Department of Economics in its series Working Papers with number 2012-07.

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Date of creation: Dec 2012
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Handle: RePEc:ala:wpaper:2012-07
Contact details of provider: Web page: http://www.cbpp.uaa.alaska.edu/CBPPHome/DepartmentsandMajors/Economics.aspx

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  1. Martin Dufwenberg & Tobias Lindqvist & Evan Moore, 2005. "Bubbles and Experience: An Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1731-1737, December.
  2. Alevy, Jonathan E. & Haigh, Michael S. & List, John A., 2003. "Information Cascades: Evidence From A Field Experiment With Financial Market Professionals," Working Papers 28608, University of Maryland, Department of Agricultural and Resource Economics.
  3. Locke, Peter R. & Mann, Steven C., 2005. "Professional trader discipline and trade disposition," Journal of Financial Economics, Elsevier, vol. 76(2), pages 401-444, May.
  4. Robert Slonim, 2005. "Competing Against Experienced and Inexperienced Players," Experimental Economics, Springer, vol. 8(1), pages 55-75, April.
  5. Bruce Mizrach & Susan Weerts, 2004. "Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room," Departmental Working Papers 200412, Rutgers University, Department of Economics.
  6. Cary Deck & David Porter & Vernon L. Smith, 2011. "Double Bubbles in Assets Markets with Multiple Generations," Working Papers 11-10, Chapman University, Economic Science Institute.
  7. Vivian Lei & Filip Vesely, 2009. "Market Efficiency: Evidence From A No-Bubble Asset Market Experiment," Pacific Economic Review, Wiley Blackwell, vol. 14(2), pages 246-258, 05.
  8. Cheung, Stephen L. & Hedegaard, Morten & Palan, Stefan, 2012. "To See Is To Believe: Common Expectations in Experimental Asset Markets," IZA Discussion Papers 6922, Institute for the Study of Labor (IZA).
  9. John A. List & Michael K. Price, 2005. "Conspiraces and Secret Price Discounts in the Marketplace: Evidence from Field Experiments," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 700-717, Autumn.
  10. Werner Antweiler & Murray Z. Frank, 2004. "Is All That Talk Just Noise? The Information Content of Internet Stock Message Boards," Journal of Finance, American Finance Association, vol. 59(3), pages 1259-1294, 06.
  11. Lei, V. & Noussair, C. & Plott, C.R., 1998. "Non-Speculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality Vs. Actual Irrationality," Purdue University Economics Working Papers 1120, Purdue University, Department of Economics.
  12. John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments 00297, The Field Experiments Website.
  13. John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc.
  14. Jürgen Huber & Michael Kirchler, 2012. "The impact of instructions and procedure on reducing confusion and bubbles in experimental asset markets," Experimental Economics, Springer, vol. 15(1), pages 89-105, March.
  15. James C. Cox & J. Todd Swarthout, . "EconPort: Creating and Maintaining a Knowledge Commons," Experimental Economics Center Working Paper Series 2006-06, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
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