Bubbles and Incentives: An Experiment on Asset Markets

Stéphane Robin (), Katerina Straznicka () and Marie Claire Villeval
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Katerina Straznicka: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique

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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 based on Smith, Suchanek and Williams (1988) ; 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. Finally, both mispricing and asset turnover are lower when the pool of traders is more risk-averse.

Keywords: Asset market; bubbles; incentives; bonuses; risk attitudes; experiment (search for similar items in EconPapers)
Date: 2012-12-21
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-hrm
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00768434v1
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Bubbles and incentives: an experiment on asset markets (2021)
Working Paper: Bubbles and Incentives: An Experiment on Asset Markets (2012)
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