Experience Does not Eliminate Bubbles: Experimental Evidence

Tinbergen Institute Discussion Paper 2018-092/II

72 Pages Posted: 12 Dec 2018 Last revised: 12 Jan 2021

See all articles by Anita Kopányi-Peuker

Anita Kopányi-Peuker

Radboud University Nijmegen - Department of Economics

Matthias Weber

University of St. Gallen - School of Finance

Date Written: March 12, 2020

Abstract

We study the role of experience in the formation of asset price bubbles. Therefore, we conduct a call market experiment in which participants trade assets with each other and a learning-to-forecast experiment in which participants only forecast future prices (while trade based on these forecasts is computerized). Each experiment comprises three treatments varying the information that participants receive about the fundamental value. Each market is repeated three times. Throughout, we observe sizable bubbles that do not disappear with experience. Our findings in the call market experiment stand in contrast to the literature. Our findings in the learning-to-forecast experiment are novel.

Keywords: Experimental finance, asset market experiment, level-k reasoning, bubbles, experience

JEL Classification: G40, C92, D53, D90

Suggested Citation

Kopányi-Peuker, Anita and Weber, Matthias, Experience Does not Eliminate Bubbles: Experimental Evidence (March 12, 2020). Tinbergen Institute Discussion Paper 2018-092/II, Available at SSRN: https://ssrn.com/abstract=3287926 or http://dx.doi.org/10.2139/ssrn.3287926

Anita Kopányi-Peuker (Contact Author)

Radboud University Nijmegen - Department of Economics ( email )

Nijmegen, 6500 HK
Netherlands

Matthias Weber

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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