 Nonspeculative bubbles revisitedJournal of Behavioral and Experimental Finance, 2024, vol. 42, issue C Abstract: In an important contribution, Lei et al. (2001, Econometrica) argue that speculation is not the driver of bubbles in the absence of common knowledge of rationality, suggesting a focus on mistakes and confusion. We revisit Lei et al.’s (2001) design, confirming the existence of bubbles. However, we argue that, although their design removes the ability to speculate, it introduces several unintended design artifacts. We discuss four possible behavioral implications of the design that may put upward pressure on transaction prices. The first is extreme initial asymmetric endowments. Second, cash to asset ratio increases with each transaction. Third, the combination of a high cash to asset ratio and removal of cash and assets from the market with each transaction impact perceived scarcity of assets more than cash. Lastly, actual scarcity of assets is present in these markets. We argue that these factors individually or in combination lead to the observed bubbles despite prohibiting speculative behavior. Keywords: Speculation; Bubbles; Asset market experiment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:42:y:2024:i:c:s2214635024000406 DOI: 10.1016/j.jbef.2024.100925 Access Statistics for this article Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber More articles in Journal of Behavioral and Experimental Finance from Elsevier |
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