Journal
JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volume 92, Issue -, Pages 304-316Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jebo.2013.06.005
Keywords
Anchoring; Financial bubbles; Laboratory experiments; Speculation; Super-exponential growth; Positive feedback
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We analyze a controlled price formation experiment in the laboratory that shows evidence for bubbles. We calibrate two models that demonstrate with high statistical significance that these laboratory bubbles have a tendency to grow faster than exponential due to positive feedback. We show that the positive feedback operates by traders continuously upgrading their over-optimistic expectations of future returns based on past prices rather than on realized returns. (C) 2013 Elsevier B.V. All rights reserved.
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