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To See Is To Believe: Common Expectations in Experimental Asset Markets

  • Cheung, Stephen L.

    ()

    (University of Sydney)

  • Hedegaard, Morten

    ()

    (University of Copenhagen)

  • Palan, Stefan

    ()

    (University of Graz)

We challenge the recent claim that mispricing in the experimental asset markets introduced by Smith, Suchanek, and Williams (1988) is merely an artefact of confusion over declining fundamental value, and can be eliminated through appropriate training. We instead propose that when training is public knowledge, it reduces uncertainty over the behavior of others and facilitates the formation of common expectations. We disentangle the effect of training from the effect of its public knowledge, and find that when all subjects are trained to understand fundamental value, but this is not public knowledge, mispricing is as great as when training is absent.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6922.

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Length: 28 pages
Date of creation: Oct 2012
Handle: RePEc:iza:izadps:dp6922
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