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Super-Exponential Bubbles in Lab Experiments: Evidence for Anchoring Over-Optimistic Expectations on Price

Andreas D. Huesler

ETH Zürich

Didier Sornette

Swiss Finance Institute; ETH Zurich

C. H. Hommes

University of Amsterdam; CeNDEF; Tinbergen Institute

May 16, 2012

Swiss Finance Institute Research Paper No. 12-20

We analyze a controlled price formation experiment in the laboratory that shows evidence for bubbles. We calibrate two models that demonstrate with high statistical significance that these laboratory bubbles have a tendency to grow faster than exponential due to positive feedback. We show that the positive feedback operates by traders continuously upgrading their over-optimistic expectations of future returns based on past prices rather than on realized returns.

Number of Pages in PDF File: 27

Keywords: rational expectations, nancial bubbles, speculation, anchoring, laboratory experiments, behavioral model, super-exponential growth, positive feedback, behavioral expectations

JEL Classification: C92, D84, G12

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Date posted: May 18, 2012  

Suggested Citation

Huesler, Andreas D. and Sornette, Didier and Hommes, C. H., Super-Exponential Bubbles in Lab Experiments: Evidence for Anchoring Over-Optimistic Expectations on Price (May 16, 2012). Swiss Finance Institute Research Paper No. 12-20. Available at SSRN: http://ssrn.com/abstract=2060978 or http://dx.doi.org/10.2139/ssrn.2060978

Contact Information

Andreas D. Huesler
Swiss Federal Institute of Technology Zurich ( email )
Zürichbergstrasse 18
8092 Zurich, CH-1015
Didier Sornette (Contact Author)
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
ETH Zurich ( email )
Department of Management, Technology and Economics
Scheuchzerstrasse 7
8092 Zurich
41446328917 (Phone)
41446321914 (Fax)
HOME PAGE: http://www.er.ethz.ch/
C. H. Hommes
University of Amsterdam ( email )
Roetersstraat 11
Amsterdam, 1018WB
CeNDEF ( email )
Roetersstraat 11
Amsterdam, NL-1018WB
HOME PAGE: http://www1.fee.uva.nl/cendef/
Tinbergen Institute ( email )
Burg. Oudlaan 50
Rotterdam, 3062 PA
Feedback to SSRN

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