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Positive expectations feedback experiments and number guessing games as models of financial markets

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  • Sonnemans, Joep
  • Tuinstra, Jan

Abstract

In repeated number guessing games choices typically converge quickly to the Nash equilibrium. In positive expectations feedback experiments, however, convergence to the equilibrium price tends to be very slow, if it occurs at all. Both types of experimental designs have been suggested as modeling essential aspects of financial markets. In order to isolate the source of the differences in outcomes we present several new experiments in this paper. We conclude that the feedback strength (i.e. the 'p-value' in standard number guessing games) is essential for the results.

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  • Sonnemans, Joep & Tuinstra, Jan, 2010. "Positive expectations feedback experiments and number guessing games as models of financial markets," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 964-984, December.
    • Handle: RePEc:eee:joepsy:v:31:y:2010:i:6:p:964-984
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    More about this item

    Keywords

    Behavioral finance Number guessing game Beauty contest game Expectations feedback systems;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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