Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130441
Authors: 
Kocher, Martin G.
Lucks, Konstantin E.
Schindler, David
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 5812
Abstract: 
One possible determinant of overpricing on asset markets is a lack of self-control abilities of traders. Self-control is the individual capacity to override or inhibit undesired behavioral tendencies such as impulses and to refrain from acting on them. We implement the first experiment that is able to address a potential causal relationship between self-control abilities and systematic overpricing on financial markets by introducing an exogenous variation of self-control abilities. Our experimental conditions seek to detect some of the channels through which individual self-control problems could transmit into irrational exuberance on the aggregate level. We observe a strong effect of inhibited self-control abilities on market overpricing. Our findings are furthermore robust to reducing self-control abilities only for a moderate share of traders in a market. Low self-control traders engage in more speculative behavior early on, but because others imitate their trading patterns, they do not end up earning less and are not driven out of the market.
Subjects: 
behavioural finance
trader behaviour
self control
experimental asset markets
overpricing
JEL: 
G02
G11
G12
D53
D84
Document Type: 
Working Paper

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