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Bubbles and Experience: An Experiment on Speculation

Author

Listed:
  • Dufwenberg, Martin

    (Economics of Department)

  • Lindqvist, Tobias

    (The Research Institute of Industrial Economics)

  • Moore, Evan

    (Auburn University Montgomery)

Abstract
We investigate experimentally how the share of experienced traders in double-auction asset markets affects trading, in particular the occurrence of bubble-crash pricing patterns. In each session, six subjects trade in three successive market rounds and gain experience. In a fourth round, depending on the treatment, two or four experienced subjects are replaced by inexperienced subjects. The results are compared to earlier findings when all traders were either inexperienced or experienced. We explore what can be learned by analogy between these laboratory findings and the performance of naturally occurring markets.

Suggested Citation

  • Dufwenberg, Martin & Lindqvist, Tobias & Moore, Evan, 2003. "Bubbles and Experience: An Experiment on Speculation," Working Paper Series 588, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0588
    as

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    References listed on IDEAS

    as
    1. Palomino, Frederic, 1996. "Noise Trading in Small Markets," Journal of Finance, American Finance Association, vol. 51(4), pages 1537-1550, September.
    2. Lei, Vivian & Noussair, Charles N & Plott, Charles R, 2001. "Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality," Econometrica, Econometric Society, vol. 69(4), pages 831-859, July.
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    6. Dilip Abreu & Markus K. Brunnermeier, 2003. "Bubbles and Crashes," Econometrica, Econometric Society, vol. 71(1), pages 173-204, January.
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    Cited by:

    1. Robert Slonim, 2005. "Competing Against Experienced and Inexperienced Players," Experimental Economics, Springer;Economic Science Association, vol. 8(1), pages 55-75, April.

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    More about this item

    Keywords

    Asset Market; Bubble; Crash; Experience; Experiment; Speculation;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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