Anchoring in Experimental Asset Markets
SAFE Working Paper No. 54
33 Pages Posted: 22 Jun 2014 Last revised: 12 Feb 2015
Date Written: February 10, 2014
We investigate the relationship between anchoring and the emergence of bubbles in experimental asset markets. We show that setting a visual anchor at the fundamental value (FV) in the first period only is sufficient to eliminate or to significantly reduce bubbles in laboratory asset markets. If no FV-anchor is set, bubble-crash patterns emerge. Our results indicate that bubbles in laboratory environments are primarily sparked in the first period. If prices are initiated around the FV, they stay close to the FV over the entire trading horizon. Our insights can be related to initial public offerings and the interaction between prices set on pre-opening markets and subsequent intra-day price dynamics.
Keywords: Experimental Asset Markets, Anchoring, Bubbles
JEL Classification: C90, C91, D03, G02, G12
Suggested Citation: Suggested Citation