Experience Does not Eliminate Bubbles: Experimental Evidence
Tinbergen Institute Discussion Paper 2018-092/II
72 Pages Posted: 12 Dec 2018 Last revised: 12 Jan 2021
Date Written: March 12, 2020
We study the role of experience in the formation of asset price bubbles. Therefore, we conduct a call market experiment in which participants trade assets with each other and a learning-to-forecast experiment in which participants only forecast future prices (while trade based on these forecasts is computerized). Each experiment comprises three treatments varying the information that participants receive about the fundamental value. Each market is repeated three times. Throughout, we observe sizable bubbles that do not disappear with experience. Our findings in the call market experiment stand in contrast to the literature. Our findings in the learning-to-forecast experiment are novel.
Keywords: Experimental finance, asset market experiment, level-k reasoning, bubbles, experience
JEL Classification: G40, C92, D53, D90
Suggested Citation: Suggested Citation