Herding and Contrarian Behavior in Financial Markets: An Internet Experiment

Mathias Drehmann, Jörg Oechssler and Andreas Roider

University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: We report results of an internet experiment designed to test the theory of informational cascades in financial markets (Avery and Zemsky, AER, 1998). More than 6000 subjects, including a subsample of 267 consultants from an international consulting firm, participated in the experiment. As predicted by theory, we find that the presence of a flexible market price prevents herding. However, the presence of contrarian behavior, which can (partly) be rationalized via error models, distorts prices, and even after 20 decisions convergence to the fundamental value is rare. We also study the effects of transaction costs and the expectations of subjects with respect to future prices. Finally, we report some interesting differences with respect to subjects’ fields of study.

Keywords: informational cascades; herding; contrarians; experiment; internet (search for similar items in EconPapers)
Date: 2003-04-01
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Related works:
Journal Article: Herding and Contrarian Behavior in Financial Markets: An Internet Experiment (2005)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2004)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2004)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2003)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2002)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2002)
Working Paper: Herding and Contrarian Behavior in Financial Markets: An Internet Experiment (2002)
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