Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation

Bruno Biais, Thomas Mariotti, Sophie Moinas and Sebastien Pouget
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Bruno Biais: HEC Paris
Thomas Mariotti: University of Toulouse 1 Capitole
Sophie Moinas: University of Toulouse 1 - Toulouse School of Economics (TSE)
Sebastien Pouget: Toulouse School of Economics

No 1598, HEC Research Papers Series from HEC Paris

Abstract: We study asset pricing and risk sharing in experimental financial markets designed to test rational choice and competitive behavior in complete markets. Participants behave competitively but deviate from rationality: approximately 25% of actions are first-order stochastically dominated. We propose a random-choice model predicting that market-clearing prices and average trades converge to the rational-choice competitive equilibrium as market size grows. Our experimental data support this convergence prediction. Structural estimation with CRRA utilities and logit choice probabilities reveals that approximately 20% of participants would have higher expected utility in autarky, suggesting bounded rationality can make market participation welfare-reducing for a significant minority.

Keywords: Asset Pricing; Risk Sharing; Experimental Financial Markets; Complete Markets; Convergence to Equilibrium; Random-Choice Model. (search for similar items in EconPapers)
JEL-codes: C91 D81 G12 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2025-11-17, Revised 2025-12-08
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1598

DOI: 10.2139/ssrn.5746849

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