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

27 Pages Posted: 18 May 2012

See all articles by Andreas D. Huesler

Andreas D. Huesler

ETH Zürich

Didier Sornette

Risks-X, Southern University of Science and Technology (SUSTech); Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Tokyo Institute of Technology

Cars H. Hommes

Government of Canada - Bank of Canada; CeNDEF, Amsterdam School of Economics, University of Amsterdam; Tinbergen Institute

Date Written: May 16, 2012

Abstract

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.

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

JEL Classification: C92, D84, G12

Suggested Citation

Huesler, Andreas D. and Sornette, Didier and Hommes, Cars 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: https://ssrn.com/abstract=2060978 or http://dx.doi.org/10.2139/ssrn.2060978

Andreas D. Huesler

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

Didier Sornette (Contact Author)

Risks-X, Southern University of Science and Technology (SUSTech) ( email )

1088 Xueyuan Avenue
Shenzhen, Guangdong 518055
China

Swiss Finance Institute ( email )

c/o University of Geneva
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ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

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Tokyo Institute of Technology ( email )

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Japan

Cars H. Hommes

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

CeNDEF, Amsterdam School of Economics, University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, NL-1018WB
Netherlands

HOME PAGE: http://https://www.uva.nl/en/profile/h/o/c.h.hommes/c.h.hommes.html

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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