Super-Exponential Bubbles in Lab Experiments: Evidence for Anchoring Over-Optimistic Expectations on Price
27 Pages Posted: 18 May 2012
Date Written: May 16, 2012
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: Suggested Citation