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Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?

The American economic review, 2008-06, Vol.98 (3), p.924-937 [Peer Reviewed Journal]

Copyright 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008 American Economic Association ;Copyright American Economic Association Jun 2008 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.98.3.924 ;CODEN: AENRAA

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Title:
Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?
Author: Hussam, Reshmaan N. ; Porter, David ; Smith, Vernon L.
Subjects: Asset markets ; Bubbles ; Cash ; Dividend distributions ; Dividends ; Economic bubbles ; Economic psychology ; Equilibrium ; Error ; Experimental psychology ; Experimental replication ; Experiments ; Financial speculation ; Fundamental value ; Knowledge ; Laboratories ; Learning ; Liquidity ; Market prices ; Market value ; Rationality ; Securities markets ; Securities prices ; Short sales ; Studies ; Uncertainty
Is Part Of: The American economic review, 2008-06, Vol.98 (3), p.924-937
Description: We report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and "error" elimination among participants in a laboratory asset market and its effect on price bubbles. Our answer to the title question is: "yes." We impose a large increase in liquidity and dividend uncertainty to shock the environment of experienced subjects who have converged to equilibrium, and this treatment rekindles a bubble. However, in replications of that same challenging environment across three experience levels, we discover that the environment yields a rare residual tendency to bubble even in the third experience session. Therefore, a caveat must be placed on the effect of twice-experienced subjects in asset markets: in order for price bubbles to be extinguished, the environment in which the participants engage in exchange must be stationary and bounded by a range of parameters. Experience, including possible "error" elimination, is not robust to major new environment changes in determining the characteristics of a price bubble.
Publisher: Nashville: American Economic Association
Language: English
Identifier: ISSN: 0002-8282
EISSN: 1944-7981
DOI: 10.1257/aer.98.3.924
CODEN: AENRAA
Source: ProQuest Central

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Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?

Copyright 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008 American Economic Association ;Copyright American Economic Association Jun 2008 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.98.3.924 ;CODEN: AENRAA

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