Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/125108
Authors: 
Bao, Te
Hommes, Cars
Makarewicz, Tomasz
Year of Publication: 
2015
Series/Report no.: 
Tinbergen Institute Discussion Paper 15-107/II
Abstract: 
This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects (1) submit a price forecast only, (2) choose quantity to buy/sell and (3) perform both tasks. We find deviation of the market price from the fundamental price in all treatments, but to a larger degree in treatments (2) and (3). Mispricing is therefore a robust finding in markets with positive expectation feedback. Some very large, recurring bubbles arise, where the price is 3 times larger than the fundamental value, which were not seen in former experiments.
Subjects: 
Financial Bubbles
Experimental Finance
Rational Expectations
Learning to Forecast
Learning to Optimize
JEL: 
C91
C92
D53
D83
D84
Document Type: 
Working Paper

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