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Nonspeculative Bubbles Revisited

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Abstract

In an important contribution, Lei et al. (2001, Econometrica) argue that speculation is not the driver of bubbles in the absence of common knowledge of rationality, suggesting a focus on mistakes and confusion. We revisit Lei et al.’s (2001) design, confirming the existence of bubbles. However, we argue that, although their design removes the ability to speculate, it introduces several unintended design artifacts, inducing bubbles.

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  • Steven Tucker & Yilong Xu, 2024. "Nonspeculative Bubbles Revisited," Working Papers in Economics 24/01, University of Waikato.
    • Handle: RePEc:wai:econwp:24/01
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    1. Anita Kopányi-Peuker & Matthias Weber & Lauren Cohen, 2021. "Experience Does Not Eliminate Bubbles: Experimental Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4450-4485.
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    More about this item

    Keywords

    speculation; bubbles; cognitive ability; asset market experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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