Bubbling with Excitement: An Experiment

34 Pages Posted: 20 Mar 2012 Last revised: 28 Jun 2012

See all articles by Terrance Odean

Terrance Odean

University of California, Berkeley - Haas School of Business

Shengle Lin

affiliation not provided to SSRN

Eduardo Andrade

affiliation not provided to SSRN

Date Written: March 1, 2012

Abstract

In an experimental setting, we study the role of emotions in markets. Our experimental market is modeled on those of Smith, Suchanek, and Williams (1988) and Caginalp, Porter, and Smith (2001). Participants play part in a laboratory market where they can trade a risky asset over a computer network. Prior to the market simulation, they watch short videos that are exciting and upbeat - chase scenes; neutral - segments from a historical documentary; fearful - scenes from a horror movie; or sad - scenes from a drama. Larger asset pricing bubbles develop in experimental markets run subsequent to the exciting videos relative to the other three conditions. The differences in the magnitude and amplitude of the bubbles are both economic and statistically significant.

Keywords: bubbles, emotions, experimental markets

JEL Classification: G02, G12, H30

Suggested Citation

Odean, Terrance and Lin, Shengle and Andrade, Eduardo, Bubbling with Excitement: An Experiment (March 1, 2012). Available at SSRN: https://ssrn.com/abstract=2024549 or http://dx.doi.org/10.2139/ssrn.2024549

Terrance Odean (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

Shengle Lin

affiliation not provided to SSRN ( email )

Eduardo Andrade

affiliation not provided to SSRN ( email )

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