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Learning through passive participation in asset market bubbles

Published online by Cambridge University Press:  01 January 2025

Timothy N. Cason  and
Anya Samek
Timothy N. Cason
Affiliation:
Department of Economics, Purdue University, 403 W. State St., West Lafayette, IN 47906-2056s, USA
Anya Samek*
Affiliation:
Center for Economic and Social Research, University of Southern California, 635 Downey Way, Los Angeles, CA 90089-3332, USA
*
e-mail: anyasamek@gmail.com
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Abstract

We report a laboratory experiment that investigates the impact of passive participation on bubble formation in asset markets with inexperienced and experienced traders. Some treatments employ pre-market training in which each participant is ‘matched’ with a trader from a different prior market and observes all trading details but does not directly participate in trading. We find that passive participation, similar to direct experience, significantly reduces mispricing in subsequent markets. This finding suggests that observation of prices is a key mechanism through which experience mitigates bubbles. We also vary whether transaction prices are displayed in a column of text or in a graphical display, and find that among inexperienced and once-experienced traders, markets with the tabular display result in bubbles that are greater in amplitude relative to markets with the graphical display.

Keywords

Laboratory experimentAsset mispricingFinanceTrading experienceC92G12G14
Type
Original Paper
Information
Journal of the Economic Science Association , Volume 1 , Issue 2 , December 2015 , pp. 170 - 181
Copyright
Copyright © Economic Science Association 2015

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Footnotes

Electronic supplementary material The online version of this article (doi:10.1007/s40881-015-0013-3) contains supplementary material, which is available to authorized users.

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Appendix I: Experiment Instructions
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