Sunspots in the Laboratory

54 Pages Posted: 17 Dec 2003 Last revised: 6 May 2016

See all articles by John Duffy

John Duffy

University of California, Irvine

Eric O'Neill Fisher

California State Polytechnic University, San Luis Obispo - Orfalea College of Business

Date Written: November 21, 2003

Abstract

We show that extrinsic or non-fundamental uncertainty influences markets in a controlled environment. This work provides the first direct evidence of sunspot equilibria. These equilibria require a common understanding of the semantics of the sunspot variable, and they appear to be sensitive to the flow of information. Extrinsic uncertainty matters when information flows slowly, as in a call market, but it need not matter when information flows quickly, as in a double auction where infra-marginal bids and offers are observable.

Keywords: Sunspots, Asset Markets, Self-fulfilling Prophecies, Extrinsic Uncertainty, Correlated Equilibrium, Experimental Economics

JEL Classification: D5, C9

Suggested Citation

Duffy, John and Fisher, Eric O'Neill, Sunspots in the Laboratory (November 21, 2003). American Economic Review, Vol. 95, No. 3, 2005. Available at SSRN: https://ssrn.com/abstract=468741 or http://dx.doi.org/10.2139/ssrn.468741

John Duffy (Contact Author)

University of California, Irvine ( email )

Department of Economics
3151 Social Science Plaza
Irvine, CA 92697
United States
949-824-8341 (Phone)

Eric O'Neill Fisher

California State Polytechnic University, San Luis Obispo - Orfalea College of Business ( email )

San Luis Obispo, CA 93407
United States

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