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 designed to test rational choice and competitive behavior in complete markets. We find that participants behave competitively but deviate from rationality: approximately 25% of their actions are first-order stochastically dominated. To interpret these experimental findings, we propose a random-choice model predicting that market-clearing prices and average trades should converge to those in the rational-choice competitive equilibrium as market size grows. Our experimental data support this convergence prediction. A structural estimation under CRRA utilities and logit choice probabilities reveals that approximately 20% of participants would have obtained higher expected utility in autarky, suggesting that bounded rationality can make market participation welfare-reducing for a significant minority.

JEL-codes: C92 G12 (search for similar items in EconPapers)
Date: 2017-04, Revised 2026-03
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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Related works:
Working Paper: Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation (2025)
Working Paper: Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:28546

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