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Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation

Author

Listed:
  • Biais, Bruno

    (HEC Paris)

  • Mariotti, Thomas

    (University of Toulouse 1 Capitole)

  • Moinas, Sophie

    (University of Toulouse 1 - Toulouse School of Economics (TSE))

  • Pouget, Sebastien

    (Toulouse School of Economics)

Abstract

We study asset pricing and risk sharing in experimental financial markets designed to test rational choice and competitive behavior in complete markets. Participants behave competitively but deviate from rationality: approximately 25% of actions are first-order stochastically dominated. We propose a random-choice model predicting that market-clearing prices and average trades converge to the rational-choice competitive equilibrium as market size grows. Our experimental data support this convergence prediction. Structural estimation with CRRA utilities and logit choice probabilities reveals that approximately 20% of participants would have higher expected utility in autarky, suggesting bounded rationality can make market participation welfare-reducing for a significant minority.

Suggested Citation

  • Biais, Bruno & Mariotti, Thomas & Moinas, Sophie & Pouget, Sebastien, 2025. "Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation," HEC Research Papers Series 1598, HEC Paris, revised 08 Dec 2025.
    • Handle: RePEc:ebg:heccah:1598
    DOI: 10.2139/ssrn.5746849
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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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