The influence of investment experience on market prices: laboratory evidence

Jürgen Huber, Michael Kirchler and Thomas Stöckl ()
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Jürgen Huber: Innsbruck University School of Management
Michael Kirchler: Innsbruck University School of Management
Thomas Stöckl: Innsbruck University School of Management

Experimental Economics, 2016, vol. 19, issue 2, No 8, 394-411

Abstract: Abstract We run laboratory experiments to analyze the impact of prior investment experience on price efficiency in asset markets. Before subjects enter the asset market they gain either no, positive, or negative investment experience in an investment game. To get a comprehensive picture about the role of experience we implement two asset market designs. One is prone to inefficient pricing, exhibiting bubble and crash patterns, while the other exhibits efficient pricing. We find that (i) both, positive and negative, experience gained in the investment game lead to efficient pricing in both market settings. Further, we show that (ii) the experience effect dominates potential effects triggered by positive and negative sentiment generated by the investment game. We conjecture that experiencing changing price paths in the investment game can create a higher sensibility on changing fundamentals (through higher salience) among subjects in the subsequently run asset market.

Keywords: Experimental finance; Asset market; Bubble; Mispricing; Information; Experience (search for similar items in EconPapers)
JEL-codes: C92 D84 G10 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s10683-015-9445-0

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