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An Experimental Study of Bubble Formation in Asset Markets Using the Tâtonnement Pricing Mechanism




We report the results of an experiment designed to study the role of institutional structure in the formation of bubbles and crashes in laboratory asset markets. In a setting employing double auctions and call markets as trading institutions, bubbles and crashes are a quite robust phenomenon. The only factor appearing to reduce bubbles is experience across markets. In this study, we employ the tâtonnement trading institution, which has not been previously explored in laboratory asset markets. The results show that bubbles are eliminated, suggesting that the trading institution plays a crucial role in the formation of bubbles.

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  • Volodymyr Lugovskyy & Daniela Puzzello & Steven Tucker, 2009. "An Experimental Study of Bubble Formation in Asset Markets Using the Tâtonnement Pricing Mechanism," Working Papers in Economics 09/19, University of Canterbury, Department of Economics and Finance.
  • Handle: RePEc:cbt:econwp:09/19

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    Cited by:

    1. repec:pit:wpaper:504 is not listed on IDEAS
    2. Adriana Breaban & Charles N. Noussair, 2014. "Fundamental value trajectories and trader characteristics in an asset market experiment," Working Papers 2014/08, Economics Department, Universitat Jaume I, Castellón (Spain).
    3. repec:gam:jjrfmx:v:11:y:2017:i:1:p:3-:d:124691 is not listed on IDEAS

    More about this item


    Bubbles; Trading Institutions; Pricing Mechanisms; Tâtonnement;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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