Non-Speculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality Vs. Actual Irrationality

V. Lei, Charles Noussair and Charles Plott

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: We report the results of an experiment designed to study the role of speculation in the formation of bubbles and crashes in laboratory asset markets. In a setting in which speculation is not possible, bubbles and crashes are observed. The results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation, but rather by behavior that itself exhibits elements of rationality.

Keywords: EXPERIMENTS; FINANCIAL MARKET; BUSINESS CYCLES (search for similar items in EconPapers)
JEL-codes: C90 E32 G10 G11 (search for similar items in EconPapers)
Pages: 32 pages
Date: 1998-11
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1120

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