Bubbles, Crashes and Endogenous Uncertainty in Linked Asset and Product Markets

International Economic Review, Forthcoming

49 Pages Posted: 23 Apr 2014 Last revised: 20 May 2015

See all articles by Taylor Jaworski

Taylor Jaworski

Queen's University

Erik O. Kimbrough

Chapman University - The George L. Argyros School of Business & Economics

Date Written: October 29, 2014

Abstract

In laboratory asset markets, subjects trade shares of a firm whose profits in a linked product market determine dividends. Treatments vary whether dividend information is revealed once per period or in real-time and whether the firm is controlled by a profit-maximizing robot or human subject. The latter variation induces uncertainty about firm behavior, bridging the gap between laboratory and field markets. Our data replicate well-known features of laboratory asset markets (e.g. bubbles), suggesting these are robust to a market-based dividend process. Compared to a sample of previous experiments, both real-time information revelation and endogenous uncertainty impede the bubble-mitigating impact of experience.

Keywords: Asset Markets, Uncertainty, Experimental Economics

JEL Classification: C91, D84

Suggested Citation

Jaworski, Taylor and Kimbrough, Erik O., Bubbles, Crashes and Endogenous Uncertainty in Linked Asset and Product Markets (October 29, 2014). International Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2427502 or http://dx.doi.org/10.2139/ssrn.2427502

Taylor Jaworski

Queen's University ( email )

94 University Avenue
Dunning Hall 209
Kingston, ON K7L 3N6
Canada

HOME PAGE: http://sites.google.com/site/tjaworski/

Erik O. Kimbrough (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

One University Dr
Orange, CA 92866
United States

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