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Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation1

Author

Listed:
  • Biais, Bruno

    (HEC Paris)

  • Mariotti, Thomas

    (University of Toulouse 1 Capitole)

  • Pouget , Sebastien

    (University of Toulouse 1 Capitole ; 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. We find that participants behave competitively but deviate from rationality: approximately 25% of their actions are first-order stochastically dominated. To interpret these experimental findings, we propose a random-choice model predicting that market-clearing prices and average trades should converge to those in the rational-choice competitive equilibrium as market size grows. Our experimental data support this convergence prediction. A structural estimation under CRRA utilities and logit choice probabilities reveals that approximately 20% of participants would have obtained higher expected utility in autarky, suggesting that bounded rationality can make market participation welfarereducing for a significant minority.

Suggested Citation

  • Biais, Bruno & Mariotti, Thomas & Pouget , Sebastien & Pouget, Sebastien, 2025. "Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation1," HEC Research Papers Series 1620, HEC Paris, revised 10 Mar 2026.
    • Handle: RePEc:ebg:heccah:1620
    DOI: 10.2139/ssrn.6388957
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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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