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

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  • Andreas Husler
  • Didier Sornette
  • Cars H. Hommes

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

  • Andreas Husler & Didier Sornette & Cars H. Hommes, 2012. "Super-exponential bubbles in lab experiments: evidence for anchoring over-optimistic expectations on price," Papers 1205.0635, arXiv.org.
    • Handle: RePEc:arx:papers:1205.0635
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    More about this item

    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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