Hindsight, Foresight, and Insight: An Experimental Study of a Small-Market Investment Game with Common and Private Values

Asen Ivanov (), Dan Levin () and James Peck
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Asen Ivanov: Department of Economics, VCU School of Business

No 801, Working Papers from VCU School of Business, Department of Economics

Abstract: We experimentally test an endogenous-timing investment model in which subjects privately observe their cost of investing and a signal correlated with the common investment return. Subjects overinvest, relative to Nash. We separately consider whether subjects draw inferences, in hindsight, and use foresight to delay profitable investment and learn from market activity. In contrast to Nash, cursed equilibrium, and level-k predictions, behavior hardly changes across our experimental treatments. Maximum likelihood estimates are inconsistent with belief-based theories. We offer an explanation in terms of boundedly rational rules of thumb, based on insights about the game, which provides a better fit than QRE.

Keywords: endogenous timing investment; level-k model; cursed equilibrium; quantal response equilibrium; rules of thumb (search for similar items in EconPapers)
JEL-codes: C92 D82 D83 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (5)

Forthcoming in American Economic Review

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Journal Article: Hindsight, Foresight, and Insight: An Experimental Study of a Small-Market Investment Game with Common and Private Values (2009)
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