Journal of Banking & Finance Vol. 24 No. 9 2000

Expectations and learning in Iowa

Oleg Bondarenko¹; Peter Bossaerts²

¹ University of Illinois Chicago · ² California Institute of Technology

Abstract

We study the rationality of learning and the biases in expectations in the Iowa Experimental Markets. Using novel tests developed in (Bossaerts, P., 1996. Martingale restrictions on equilibrium security prices under rational expectations and consistent beliefs. Caltech working paper; Bossaerts, P., 1997. The dynamics of equity prices in fallible markets. Caltech working paper), learning in the Iowa winner-take-all markets is found to be in accordance with the rules of conditional probability (Bayes' law). Hence, participants correctly update their beliefs using the available information. There is evidence, however, that beliefs do not satisfy the restrictions of rational expectations that they reflect the factual distribution of outcomes.

DOI

10.1016/s0378-4266(99)00090-4

Volume

24

Issue

9

Pages

1535-1555

Language

en

Sources

bibtex:phds-export.bib crossref openalex

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓