Rational and Irrational Bubbles: an Experiment

Sophie Moinas and Sébastien Pouget

No 09-045, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper proposes a theory of rational bubbles in an economy with finite trading opportunities. Bubbles arise because agents are never sure to be last in the market sequence. This theory is used to design an experimental setting in which bubbles can be made rational or irrational by varying one parameter. This complements the experimental literature on irrational bubbles initiated by Smith, Suchanek and Williams (1988). Our experimental results suggest that it is pretty difficult to coordinate on rational bubbles even in an environment where irrational bubbles flourish. Maximum likelihood estimations show that these results can be reconciled within the context of Camerer, Ho, and Chong (2004)'s cognitive hierarchy model, and Mc Kelvey and Palfrey (1995)'s quantal response equilibrium.

Date: 2009-05
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.tse-fr.eu/sites/default/files/medias/doc/wp/fit/wp_fit_45_2009.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:21929

Access Statistics for this paper

More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC.
Bibliographic data for series maintained by ().