Bubbles and incentives: an experiment on asset markets

Stéphane Robin (), Katerina Straznicka () and Marie Claire Villeval
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Stéphane Robin: GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes
Katerina Straznicka: CleRMa - Clermont Recherche Management - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne

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Abstract: We explore the effects of competitive incentives and of their time horizon on the evolution of both asset prices and trading activity in experimental asset markets. We compare (i) a no-bonus treatment; (ii) a short-term bonus treatment in which bonuses are assigned to the best performers at the end of each trading period; (iii) a long-term bonus treatment in which bonuses are assigned to the best performers at the end of the 15 periods of the market. We find that the existence of bonus contracts does not increase the likelihood of bubbles but it affects their severity, depending on the time horizon of bonuses. Markets with long-term bonus contracts experience lower price deviations and a lower turnover of assets than markets with either no bonuses or long-term bonus contracts. Short-term bonus contracts increase price deviations but only when markets include a higher share of male traders. At the individual level, the introduction of bonus contracts increases the trading activity of males, probably due to their higher competitiveness.

Keywords: Experiment; Risk attitudes; Asset market; Bubbles; Incentives; Bonuses (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-exp, nep-fmk and nep-isf
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03033454v1
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Published in Economic and Political Studies, 2021, 9 (1), pp.68-89. ⟨10.1080/20954816.2020.1839158⟩

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Related works:
Working Paper: Bubbles and Incentives: An Experiment on Asset Markets (2012)
Working Paper: Bubbles and Incentives: An Experiment on Asset Markets (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03033454

DOI: 10.1080/20954816.2020.1839158

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