Wednesday, May 10, 2006
Lest You Think I'm Completely Down on Experimental Economics
by Tom Bozzo
Sun rises, sun sets, maybe, but at first glance it shows something of what's involved with teasing out the factors.
This paper reports on an interesting experiment.
The Origins of Bubbles in Laboratory Asset Markets
[306 KB PDF]
Lucy F. Ackert, Narat Charupat, Richard Deaves, and Brian D. Kluger [Federal Reserve Bank of Atlanta] Working Paper 2006-6, May 2006
In twelve sessions conducted in a typical bubble-generating experimental environment, we design a pair of assets that can detect both irrationality and speculative behavior. The specific form of irrationality we investigate is probability judgment error associated with low-probability, high-payoff outcomes. Independently, we test for speculation by comparing prices of identically paying assets in multiperiod versus single-period markets. When these tests indicate the presence of probability judgment error and speculation, bubbles are more likely to occur. This finding suggests that both factors are important bubble drivers.
Sun rises, sun sets, maybe, but at first glance it shows something of what's involved with teasing out the factors.
