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

Bruno Biais, Thomas Mariotti, Sophie Moinas and Sébastien Pouget

No 17-798, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We study asset pricing and risk sharing in experimental financial markets. We design our experiment to test the key equilibrium implications of rational choice and competitive behavior in complete markets without making parametric assumptions on preferences. We find that participants behave competitively but deviate from rationality, as around 25% of their actions are first-order stochastically dominated. We propose a random-choice model predicting that, as the number of participants grows large, prices and average per-participant trades converge to those in the rational-choice competitive equilibrium. This prediction is supported by our experimental data. We structurally estimate a special case of the random-choice model with CRRA utilities and logit weighting functions and find that only around 80% of participants benefit from participating in the market.

JEL-codes: C92 G12 (search for similar items in EconPapers)
Date: 2017-04, Revised 2024-08
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:28546

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