To See Is To Believe: Common Expectations in Experimental Asset Markets

Stephen Cheung, Morten Hedegaard () and Stefan Palan ()
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Morten Hedegaard: University of Copenhagen

No 6922, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We challenge the recent claim that mispricing in the experimental asset markets introduced by Smith, Suchanek, and Williams (1988) is merely an artefact of confusion over declining fundamental value, and can be eliminated through appropriate training. We instead propose that when training is public knowledge, it reduces uncertainty over the behavior of others and facilitates the formation of common expectations. We disentangle the effect of training from the effect of its public knowledge, and find that when all subjects are trained to understand fundamental value, but this is not public knowledge, mispricing is as great as when training is absent.

Keywords: price bubbles; common knowledge of rationality; asset market experiment (search for similar items in EconPapers)
JEL-codes: C92 D84 G12 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2012-10
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Published - revised version published in: European Economic Review, 2014, 66, 84-96

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Related works:
Journal Article: To see is to believe: Common expectations in experimental asset markets (2014)
Working Paper: To See Is To Believe: Common Expectations In Experimental Asset Markets (2012)
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