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Overpricing persistence in experimental asset markets with intrinsic uncertainty

Author

Listed:
  • Sornette, Didier
  • Andraszewicz, Sandra
  • Wu, Ke
  • Murphy, Ryan O.
  • Rindler, Philipp
  • Sanadgol, Dorsa

Abstract

To study coordination in complex social systems such as financial markets, the authors introduce a new prediction market set-up that accounts for fundamental uncertainty. Nonetheless, the market is designed so that its total value is known, and thus its rationality can be evaluated. In two experiments, the authors observe that quick consensus emerges early yielding pronounced mispricing, which however does not show the standard 'bubble-and-crash'. The set-up is implemented within the xYotta collaborative platform (https://xyotta.com). xYotta's functionality offers a large number of extensions of various complexity such as running several parallel markets with the same or different users, as well as collaborative project development in which projects undergo the equivalent of an IPO (initial public offering) and whose subsequent trading matches the role of financial markets in determining value. xYotta is thus offered to researchers as an open source software for the broad investigation of complex systems with human participants.

Suggested Citation

  • Sornette, Didier & Andraszewicz, Sandra & Wu, Ke & Murphy, Ryan O. & Rindler, Philipp & Sanadgol, Dorsa, 2020. "Overpricing persistence in experimental asset markets with intrinsic uncertainty," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-53.
    • Handle: RePEc:zbw:ifweej:202020
    DOI: 10.5018/economics-ejournal.ja.2020-20
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    References listed on IDEAS

    as
    1. J. Hirshleifer, 1966. "Investment Decision Under Uncertainty: Applications of the State-Preference Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(2), pages 252-277.
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    More about this item

    Keywords

    experimental asset market; prediction market; uncertainty; experimental economics;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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