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Bubble Formation and (In)efficient Markets in Learning-to-Forecast and -Optimize Experiments

  • Bao, T.

    ()

    (University of Amsterdam)

  • Hommes, C.H.

    ()

    (University of Amsterdam)

  • Makarewicz, T.A.

    ()

    (University of Amsterdam)

This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects (1) submit a price forecast only, (2) choose quantity to buy/sell and (3) perform both tasks. We find that bubbles emerge in all these treatments, but to a larger degree in treatment (2) and (3). Our result confirms that bubble formation is a robust finding in markets with positive expectation feedback. We also find some repeated ``super bubbles'' where the price is 3 times larger than the fundamental value, which were not seen in former experiments.

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Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 14-01.

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Date of creation: 2014
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Handle: RePEc:ams:ndfwpp:14-01
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