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

22 Pages Posted: 12 Feb 2016

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: February 2016

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.

Suggested Citation

Jaworski, Taylor and Kimbrough, Erik O., Bubbles, Crashes, and Endogenous Uncertainty in Linked Asset and Product Markets (February 2016). International Economic Review, Vol. 57, Issue 1, pp. 155-176, 2016, Available at SSRN: https://ssrn.com/abstract=2731405 or http://dx.doi.org/10.1111/iere.12151

Taylor Jaworski

Queen's University

Kingston, Ontario K7L 3N6
Canada

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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