Time pressure reduces financial bubbles: Evidence from a forecasting experiment

Mikhail Anufriev, Frieder Neunhoeffer and Jan Tuinstra

No 2024/0351, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We investigate whether time pressure exacerbates or mitigates bubbles in laboratory experiments. We find that under high time pressure price volatility is lower and market prices are closer to their fundamental value. This is due to participants using simpler adaptive forecasting strategies, instead of the selfreinforcing extrapolative expectations that they use under low time pressure, and which are conducive to the emergence of bubbles. In addition, by substantially increasing the number of decision periods in our experiment we find that in the long run prices eventually tend to converge to their fundamental value, also in the absence of time pressure.

Keywords: expectation formation; learning-to-forecast; time pressure; long run dynamics; forecasting strategies. (search for similar items in EconPapers)
JEL-codes: C91 G11 G41 (search for similar items in EconPapers)
Date: 2024-10
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 (1)

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