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Bubbles in Asset Markets and the Heterogeneity of Beliefs

Author

Listed:
  • Eizo Akiyama
  • Yukihiko Funaki
  • Ryuichiro Ishikawa
  • Yaron Lahav
  • Charles N. Noussair

Abstract

We examine the relationship between information about trader expectations and pricing in asset markets. In a laboratory experiment, we elicit long-term beliefs from traders about future prices, and make different subsets of the belief information common knowledge, depending on the treatment. As hypothesized, there is a strong tendency for traders to adjust their beliefs toward the median belief in their market. Surprisingly, we find that making the median price prediction for the entire future time horizon common knowledge eliminates mispricing.

Suggested Citation

  • Eizo Akiyama & Yukihiko Funaki & Ryuichiro Ishikawa & Yaron Lahav & Charles N. Noussair, 2024. "Bubbles in Asset Markets and the Heterogeneity of Beliefs," Experimental Economics Center Working Paper Series 2024-04, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:exc:wpaper:2024-04
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