Speculating in zero-value assets: The greater fool game experiment

Armando Holzknecht (), Jürgen Huber, Michael Kirchler () and Tibor Neugebauer ()

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

Abstract: In a pre-registered laboratory asset market study, we investigate dynamics of asset markets with zero (or close to zero) fundamental values. We introduce the “greater fool asset market game” with a zero-value token, whose price doubles in each period. We design several treatments, which differ in terms of whether the fundamental value is zero for sure, and whether the rather low probability of non-zero fundamentals is known (Risk) or not (Ambiguity). We find that prices in markets with zero fundamental value are clearly above zero. Furthermore, we report that prices in treatment Ambiguity are substantially higher than those in the baseline and in treatment Risk. Finally, we show that beliefs regarding the asset’s value and others’ participation explain individual market participation.

Keywords: speculative bubbles; greater fool; behavioral economics; experimental finance (search for similar items in EconPapers)
JEL-codes: C91 C92 G12 G41 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-exp, nep-gth and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:inn:wpaper:2024-09

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