Coordination on bubbles in large-group asset pricing experiments

Domenico Massaro, Te Bao, Myrna Hennequin

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

We present a large-group experiment in which participants predict the price of an asset, whose realization depends on the aggregation of individual forecasts. The markets consist of 21 to 32 participants, a group size larger than in most experiments. Multiple large price bubbles occur in six out of seven markets. The bubbles emerge even faster than in smaller markets. Individual forecast errors do not cancel out at the aggregate level, but participants coordinate on a trend-following prediction strategy that gives rise to large bubbles. The observed price patterns can be captured by a behavioral heuristics switching model with heterogeneous expectations.
Original languageEnglish
Pages (from-to)N/A-N/A
JournalJOURNAL OF ECONOMIC DYNAMICS & CONTROL
Volume110
DOIs
Publication statusPublished - 2020

Keywords

  • Asset price bubbles
  • Experimental economics
  • Heterogeneous expectations
  • Heuristics switching

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