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
Date Written: October 29, 2014
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: Suggested Citation