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

27 Pages Posted: 18 May 2012  

Andreas D. Huesler

ETH Zürich

Didier Sornette

Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)

C. H. Hommes

University of Amsterdam; CeNDEF; 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, 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: 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)

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
Switzerland
41446328917 (Phone)
41446321914 (Fax)

HOME PAGE: http://www.er.ethz.ch/

C. H. Hommes

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018WB
Netherlands

CeNDEF ( email )

Roetersstraat 11
Amsterdam, NL-1018WB
Netherlands

HOME PAGE: http://www1.fee.uva.nl/cendef/

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Paper statistics

Downloads
151
Rank
157,909
Abstract Views
1,500