Bubbles and Incentives: An Experiment on Asset Markets

Stéphane Robin (), Katerina Straznicka () and Marie Claire Villeval
Additional contact information
Katerina Straznicka: Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France

No 1235, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We explore the effects of competitive incentives and of their time horizon on the evolution of both asset prices and trading activity in experimental asset markets. We compare i) a no-bonus treatment based on Smith, Suchanek and Williams (1988) ; ii) a short-term bonus treatment in which bonuses are assigned to the best performers at the end of each trading period ; iii) a long-term bonus treatment in which bonuses are assigned to the best performers at the end of the 15 periods of the market. We find that the existence of bonus contracts does not increase the likelihood of bubbles but it affects their severity, depending on the time horizon of bonuses. Markets with long-term bonus contracts experience lower price deviations and a lower turnover of assets than markets with either no bonuses or long-term bonus contracts. Short-term bonus contracts increase price deviations but only when markets include a higher share of male traders. At the individual level, the introduction of bonus contracts increases the trading activity of males, probably due to their higher competitiveness. Finally, both mispricing and asset turnover are lower when the pool of traders is more risk-averse.

Keywords: Asset market; bubbles; incentives; bonuses; risk attitudes; experiment (search for similar items in EconPapers)
JEL-codes: C92 M52 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cbe and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Journal Article: Bubbles and incentives: an experiment on asset markets (2021)
Working Paper: Bubbles and incentives: an experiment on asset markets (2021)
Working Paper: Bubbles and Incentives: An Experiment on Asset Markets (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1235

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