Journal of Financial and Quantitative Analysis 2009
Probability Judgment Error and Speculation in Laboratory Asset Market Bubbles
Abstract
In 12 sessions conducted in a typical bubble-generating experimental environment, we design a pair of assets that can detect both irrationality and speculative behavior. The specific form of irrationality we investigate is the probability judgment error associated with low-probability, high-payoff outcomes. Independently, we test for speculation by comparing prices of identically paying assets in multiperiod versus single-period markets. We establish that aggregate irrationality measured in one dimension (probability judgment error) is associated with aggregate irrationality measured in another (bubble formation).
- DOI
- 10.1017/s0022109009090206
- Pages
- 1
- Language
- en
- Sources
- openalex crossref