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To see is to believe: Common expectations in experimental asset markets

Stephen Cheung, Morten Hedegaard and Stefan Palan (stefan.palan@uni-graz.at)

European Economic Review, 2014, vol. 66, issue C, 84-96

Abstract: 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 et al. (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 propose 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 effect of its public knowledge, and our results demonstrate a distinct and statistically significant effect of public knowledge over and above that of training alone.

Keywords: Asset market experiment; Mispricing; Confusion; Common expectations (search for similar items in EconPapers)
JEL-codes: C92 D84 G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (85)

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Working Paper: To See Is To Believe: Common Expectations in Experimental Asset Markets (2012) Downloads
Working Paper: To See Is To Believe: Common Expectations In Experimental Asset Markets (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:66:y:2014:i:c:p:84-96

DOI: 10.1016/j.euroecorev.2013.11.009

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