Super-Exponential Bubbles in Lab Experiments: Evidence for Anchoring Over-Optimistic Expectations on Price
Andreas D. Huesler
Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)
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
Date posted: May 18, 2012
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