Review of Financial Studies Vol. 32 No. 6 2019

Unleashing Animal Spirits: Self-Control and Overpricing in Experimental Asset Markets

Martin G. Kocher¹; Konstantin E Lucks²; David Schindler³

¹ Institute for Advanced Studies, Vienna, University of Vienna, and University of Gothenburg · ² University of Munich · ³ Tilburg University

Abstract

One explanation for overpricing on asset markets is a lack of traders' self-control. Self-control is the individual capacity to override or inhibit undesired impulses that may drive prices. We implement the first experiment to address the causal relationship between self-control abilities and systematic overpricing on financial markets. Our setup can detect some of the channels through which individual self-control restrictions could transmit into irrational exuberance in markets. Our data indicate a large direct effect of restricted self-control abilities on market overpricing. Low self-control traders report stronger emotions after the market.

DOI

10.1093/rfs/hhy109

Volume

32

Issue

6

Pages

2149-2178

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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