Learning in Speculative Bubbles: An Experiment

Hong, Jieying, Moinas, Sophie and Pouget, Sébastien (2018) Learning in Speculative Bubbles: An Experiment. TSE Working Paper, n. 18-882, Toulouse

[img]
Preview
Text
Download (2MB) | Preview
Official URL: http://tse-fr.eu/pub/32373

Abstract

Does traders' experience reduce their propensity to participate in speculate bubbles? This paper studies this issue from a theoretical and an experimental viewpoint. We focus on a game in which bubbles, if they arise, are irrational, as in the Smith, Suchanek, and Williams (1988)'s set up. Our theoretical results are based on Camerer and Ho (1999)'s Experience-Weighted Attraction learning model. Adaptive traders are assumed to adjust their behavior according to actions' past performance. In the long run, learning induces the market to converge to the unique no bubble equilibrium. However, learning initially increases traders' propensity to speculate. In the short run, more experienced traders thus create more bubbles. An experiment shows that bubbles are very pervasive despite the fact that subjects have become experienced. Our estimation of the EWA model also indicates that learning is at work.

Item Type: Monograph (Working Paper)
Language: English
Date: January 2018
Place of Publication: Toulouse
Uncontrolled Keywords: financial markets, adaptive learning, speculation, bubbles
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 24 Apr 2018 09:13
Last Modified: 15 Jul 2019 13:11
OAI ID: oai:tse-fr.eu:32373
URI: http://publications.ut-capitole.fr/id/eprint/25815

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year