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Incentive schemes, framing, and market behaviour: Evidence from an asset-market experiment

Xuegang Cui, Nick Feltovich () and Kun Zhang

Journal of Economic Behavior & Organization, 2022, vol. 197, issue C, 301-324

Abstract: We investigate how asset prices and trading behaviour are impacted by the structure and framing of incentives, using a lab experiment. Subjects buy and sell a high-risk asset, a low-risk asset, and riskless cash over 10 rounds. We vary, between-subjects, the incentive scheme (relative versus absolute performance), and how the variable component of incentives is framed (bonus versus penalty), while holding constant the convexity of incentives. Both relative-performance (tournament) incentives and penalty framing are associated with significant increases in the price of the high-risk asset, relative to either its fundamental value or to the price of the low-risk asset. Additional analysis shows significant gender differences in trading behaviour and performance, and evidence that the two may be connected.

Keywords: Asset markets; Behavioural finance; Bubbles; Experiment; Tournament; Framing; Incentives; Gender (search for similar items in EconPapers)
JEL-codes: C92 D81 D91 G11 G12 G41 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jebo.2022.03.007

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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