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The Bubble Game: An Experimental Study of Speculation

Sophie Moinas and Sébastien Pouget

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Abstract: We propose a bubble game that involves sequential trading of an asset commonly known to be valueless. Because no trader is ever sure to be last in the market sequence, the game allows for a bubble at the Nash equilibrium when there is no cap on the maximum price. We run experiments both with and without a price cap. Structural estimation of behavioral game theory models suggests that quantal responses and analogy-based expectations are important drivers of speculation.

Keywords: quantal response equilibrium; analogy-based expectation equilibrium; cognitive hierarchy model; experiments; irrational bubbles; Rational bubbles; "Rational bubbles"; "irrational bubbles"; "experiments"; "cognitive hierarchy model"; "quantal response equilibrium"; "analogy-based expectation equilibrium" (search for similar items in EconPapers)
Date: 2013
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Published in Econometrica, Econometric Society, 2013, 81 (4), pp.1507-1539. ⟨10.3982/ECTA9433⟩

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