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Super-exponential bubbles in lab experiments: Evidence for anchoring over-optimistic expectations on price

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  • Hüsler, A.
  • Sornette, D.
  • Hommes, C.H.

Abstract

We analyze a controlled price formation experiment in the laboratory that shows evidence for bubbles. We calibrate two models that demonstrate with high statistical significance that these laboratory bubbles have a tendency to grow faster than exponential due to positive feedback. We show that the positive feedback operates by traders continuously upgrading their over-optimistic expectations of future returns based on past prices rather than on realized returns.

Suggested Citation

  • Hüsler, A. & Sornette, D. & Hommes, C.H., 2013. "Super-exponential bubbles in lab experiments: Evidence for anchoring over-optimistic expectations on price," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 304-316.
    • Handle: RePEc:eee:jeborg:v:92:y:2013:i:c:p:304-316
    DOI: 10.1016/j.jebo.2013.06.005
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    More about this item

    Keywords

    Anchoring; Financial bubbles; Laboratory experiments; Speculation; Super-exponential growth; Positive feedback;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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