Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets

CentER Discussion Paper Series No. 2018-010

73 Pages Posted: 19 Mar 2018

See all articles by Martin Kocher

Martin Kocher

University of Vienna

Konstantin E. Lucks

Ludwig Maximilian University of Munich (LMU)

David Schindler

Tilburg University

Date Written: March 10, 2018

Abstract

One explanation for overpricing on asset markets is a lack of traders’ self-control. Selfcontrol is the individual capacity to override or inhibit undesired impulses that may drive prices. We implement the first experiment to address the causal relationship between selfcontrol abilities and systematic overpricing on financial markets. Our setup can detect some of the channels through which individual self-control restrictions could transmit into irrational exuberance in markets. Our data indicate a large direct effect of restricted self-control abilities on market overpricing. Low self-control traders report stronger emotions after the market.

Keywords: behavioral finance, trader behavior, self control, experimental asset markets

JEL Classification: G02, G11, G12, D53, D84

Suggested Citation

Kocher, Martin and Lucks, Konstantin E. and Schindler, David, Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets (March 10, 2018). CentER Discussion Paper Series No. 2018-010, Available at SSRN: https://ssrn.com/abstract=3140254 or http://dx.doi.org/10.2139/ssrn.3140254

Martin Kocher

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Konstantin E. Lucks

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

David Schindler (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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