Download This PaperSunspots in the Laboratory
54 Pages Posted: 17 Dec 2003 Last revised: 6 May 2016
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: Suggested Citation
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