The origins of bubbles in laboratory asset markets

Lucy Ackert, Narat Charupat, Richard Deaves and Brian D. Kluger

No 2006-06, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: In twelve sessions conducted in a typical bubble-generating experimental environment, we design a pair of assets that can detect both irrationality and speculative behavior. The specific form of irrationality we investigate is probability judgment error associated with low-probability, high-payoff outcomes. Independently, we test for speculation by comparing prices of identically paying assets in multiperiod versus single-period markets. When these tests indicate the presence of probability judgment error and speculation, bubbles are more likely to occur. This finding suggests that both factors are important bubble drivers.

Date: 2006
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-fmk
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Citations: View citations in EconPapers (6)

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