Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation1

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

No 1620, 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. We find that participants behave competitively but deviate from rationality: approximately 25% of their actions are first-order stochastically dominated. To interpret these experimental findings, we propose a random-choice model predicting that market-clearing prices and average trades should converge to those in the rational-choice competitive equilibrium as market size grows. Our experimental data support this convergence prediction. A structural estimation under CRRA utilities and logit choice probabilities reveals that approximately 20% of participants would have obtained higher expected utility in autarky, suggesting that bounded rationality can make market participation welfarereducing for a significant minority.

Keywords: Asset Pricing; Risk Sharing; Experimental Financial Markets; Random-Choice Model (search for similar items in EconPapers)
JEL-codes: C91 D51 G12 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2025-11-17, Revised 2026-03-10
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1620

DOI: 10.2139/ssrn.6388957

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