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

  • Cheung, Stephen L.
  • Hedegaard, Morten
  • Palan, Stefan

We experimentally manipulate agents' information regarding the rationality of others in a setting in which previous studies have found irrationality to be present, namely the asset market experiments introduced by Smith, Suchanek, and Williams (Econometrica, 1988). Recent studies suggest that mispricing in such markets may be an artefact of confusion, which can be reduced by training subjects to understand the diminishing fundamental value. We reconsider this view, and argue that when it is made public knowledge that training has occurred, this may also reduce uncertainty over the behavior of others and facilitate the formation of common expectations. Our design disentangles the direct effect of training from the indirect e_ect of its public knowledge, and our results indicate a distinct effect of public knowledge over and above that of training alone

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Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2012-10.

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Date of creation: May 2012
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Handle: RePEc:syd:wpaper:2123/8368
Contact details of provider: Postal: Sydney, NSW 2006
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