IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/halshs-01622466.html
   My bibliography  Save this paper

Behavioral Uncertainty and the dynamics of traders' confidence in their Price forecasts

Author

Listed:
  • Nobuyuki Hanaki

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Eizo Akiyama

    (Faculty of Engineering, Information and Systems [Tsukuba] - Université de Tsukuba = University of Tsukuba)

  • Ryuichiro Ishikawa

    (School of International Liberal Studies, Waseda University)

Abstract

By how much does the presence of behavioral uncertainty in an experimental asset market reduce subjects’ confidence in their price forecasts? An incentivized interval forecast elicitation method is employed to answer this question. Each market consists of six traders, and the value of dividends is known. Two treatments are considered: six human traders (6H), and one human interacting with five computer traders whose behavior is known (1H5C). We find that while the deviation of the initial price forecasts from fundamental value is smaller in the 1H5C treatment than in the 6H treatment, albeit not statistically significantly, the average confidence regarding the forecasts is not. We further analyze the relationships between subjects’ confidence in their forecasts and their trading behavior, as well as their trading performance, in the 6H treatment. While subjects’ high confidence in their short-term forecasts shows a negative correlation with their trading performance, high confidence in their long-term forecasts shows a positive correlation with trading performance.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2017. "Behavioral Uncertainty and the dynamics of traders' confidence in their Price forecasts," Working Papers halshs-01622466, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01622466
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01622466
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-01622466/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2017. "It is Not Just Confusion! Strategic Uncertainty in An Experimental Asset Market," Economic Journal, Royal Economic Society, vol. 127(605), pages 563-580, October.
    2. Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2017. "Effects of Eliciting Long-run Price Forecasts on Market Dynamics in Asset Market Experiments," GREDEG Working Papers 2017-26, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    3. Terrance Odean., 1996. "Volume, Volatility, Price and Profit When All Trader Are Above Average," Research Program in Finance Working Papers RPF-266, University of California at Berkeley.
    4. Akiyama, Eizo & Hanaki, Nobuyuki & Ishikawa, Ryuichiro, 2014. "How do experienced traders respond to inflows of inexperienced traders? An experimental analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 1-18.
    5. Carlé, Tim A. & Lahav, Yaron & Neugebauer, Tibor & Noussair, Charles N., 2019. "Heterogeneity of Beliefs and Trade in Experimental Asset Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(1), pages 215-245, February.
    6. Hanaki, Nobuyuki & Akiyama, Eizo & Ishikawa, Ryuichiro, 2018. "Effects of different ways of incentivizing price forecasts on market dynamics and individual decisions in asset market experiments," Journal of Economic Dynamics and Control, Elsevier, vol. 88(C), pages 51-69.
    7. Nobuyuki Hanaki & Eizo Akiyama & Yukihiko Funaki & Ryuichiro Ishikawa, 2017. "Diversity in Cognitive Ability Enlarges Mispricing in Experimental Asset Markets," Working Papers halshs-01202088, HAL.
    8. Bao, Te & Duffy, John & Hommes, Cars, 2013. "Learning, forecasting and optimizing: An experimental study," European Economic Review, Elsevier, vol. 61(C), pages 186-204.
    9. Kirchler, Erich & Maciejovsky, Boris, 2002. "Simultaneous Over- and Underconfidence: Evidence from Experimental Asset Markets," Journal of Risk and Uncertainty, Springer, vol. 25(1), pages 65-85, July.
    10. Bruno Biais & Denis Hilton & Karine Mazurier & Sébastien Pouget, 2005. "Judgemental Overconfidence, Self-Monitoring, and Trading Performance in an Experimental Financial Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(2), pages 287-312.
    11. Michailova, Julija, 2010. "Overconfidence and bubbles in experimental asset markets," MPRA Paper 26388, University Library of Munich, Germany.
    12. Cheung, Stephen L. & Hedegaard, Morten & Palan, Stefan, 2014. "To see is to believe: Common expectations in experimental asset markets," European Economic Review, Elsevier, vol. 66(C), pages 84-96.
    13. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    14. Julija Michailova & Ulrich Schmidt, 2016. "Overconfidence and Bubbles in Experimental Asset Markets," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 17(3), pages 280-292, July.
    15. Cueva, Carlos & Rustichini, Aldo, 2015. "Is financial instability male-driven? Gender and cognitive skills in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 330-344.
    16. Ernan Haruvy & Yaron Lahav & Charles N. Noussair, 2007. "Traders' Expectations in Asset Markets: Experimental Evidence," American Economic Review, American Economic Association, vol. 97(5), pages 1901-1920, December.
    17. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-1151, September.
    18. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    19. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
    20. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    21. Richard Deaves & Erik Lüders & Guo Ying Luo, 2009. "An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity," Review of Finance, European Finance Association, vol. 13(3), pages 555-575.
    22. repec:bla:jfinan:v:53:y:1998:i:6:p:1887-1934 is not listed on IDEAS
    23. Michael Kirchler & Jurgen Huber & Thomas Stockl, 2012. "Thar She Bursts: Reducing Confusion Reduces Bubbles," American Economic Review, American Economic Association, vol. 102(2), pages 865-883, April.
    24. Van Boening, Mark V. & Williams, Arlington W. & LaMaster, Shawn, 1993. "Price bubbles and crashes in experimental call markets," Economics Letters, Elsevier, vol. 41(2), pages 179-185.
    25. Jürgen Huber & Michael Kirchler, 2012. "The impact of instructions and procedure on reducing confusion and bubbles in experimental asset markets," Experimental Economics, Springer;Economic Science Association, vol. 15(1), pages 89-105, March.
    26. Catherine C. Eckel & Sascha C. Füllbrunn, 2015. "Thar SHE Blows? Gender, Competition, and Bubbles in Experimental Asset Markets," American Economic Review, American Economic Association, vol. 105(2), pages 906-920, February.
    27. Stefan Palan, 2013. "A Review Of Bubbles And Crashes In Experimental Asset Markets," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 570-588, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aragón, Nicolás & Roulund, Rasmus Pank, 2020. "Confidence and decision-making in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 688-718.
    2. Ahrens, Steffen & Bosch-Rosa, Ciril & Roulund, Rasmus, 2019. "Price Dynamics and Trader Overconfidence," Rationality and Competition Discussion Paper Series 161, CRC TRR 190 Rationality and Competition.
    3. Hubert J. Kiss & Laszlo A. Koczy & Agnes Pinter & Balazs R. Sziklai, 2019. "Does risk sorting explain bubbles?," CERS-IE WORKING PAPERS 1905, Institute of Economics, Centre for Economic and Regional Studies.
    4. Adrian Penalver, Nobuyuki Hanaki, Eizo Akiyama, Yukihiko Funaki, Ryuichiro Ishikawa, 2018. "An Experimental Analysis Of The Effect Of Quantitative Easing," Working papers 684, Banque de France.
    5. Te Bao & Elizaveta Nekrasova & Tibor Neugebauer & Yohanes E. Riyanto, 2022. "Algorithmic trading in experimental markets with human traders: A literature survey," Chapters, in: Sascha Füllbrunn & Ernan Haruvy (ed.), Handbook of Experimental Finance, chapter 23, pages 302-322, Edward Elgar Publishing.
    6. Penalver, Adrian & Hanaki, Nobuyuki & Akiyama, Eizo & Funaki, Yukihiko & Ishikawa, Ryuichiro, 2020. "A quantitative easing experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    7. Yin, Xile & Li, Jianbiao & Bao, Te, 2019. "Does overconfidence promote cooperation? Theory and experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 79(C), pages 119-133.
    8. Bao, Te & Zong, Jichuan, 2019. "The impact of interest rate policy on individual expectations and asset bubbles in experimental markets," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    9. Kiss, Hubert J. & Kóczy, László Á. & Pintér, Ágnes & Sziklai, Balázs R., 2022. "Does risk sorting explain overpricing in experimental asset markets?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 99(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kiss, Hubert J. & Kóczy, László Á. & Pintér, Ágnes & Sziklai, Balázs R., 2022. "Does risk sorting explain overpricing in experimental asset markets?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 99(C).
    2. Amos Nadler & Peiran Jiao & Cameron J. Johnson & Veronika Alexander & Paul J. Zak, 2019. "The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading," Management Science, INFORMS, vol. 64(9), pages 4032-4051, September.
    3. Utz Weitzel & Christoph Huber & Jürgen Huber & Michael Kirchler & Florian Lindner & Julia Rose & Lauren Cohen, 2020. "Bubbles and Financial Professionals," The Review of Financial Studies, Society for Financial Studies, vol. 33(6), pages 2659-2696.
    4. Penalver, Adrian & Hanaki, Nobuyuki & Akiyama, Eizo & Funaki, Yukihiko & Ishikawa, Ryuichiro, 2020. "A quantitative easing experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    5. Hubert J. Kiss & Laszlo A. Koczy & Agnes Pinter & Balazs R. Sziklai, 2019. "Does risk sorting explain bubbles?," CERS-IE WORKING PAPERS 1905, Institute of Economics, Centre for Economic and Regional Studies.
    6. Shestakova, Natalia & Powell, Owen & Gladyrev, Dmitry, 2019. "Bubbles, experience and success," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 206-213.
    7. Ciril Bosch-Rosa & Thomas Meissner & Antoni Bosch-Domènech, 2018. "Cognitive bubbles," Experimental Economics, Springer;Economic Science Association, vol. 21(1), pages 132-153, March.
    8. Nobuyuki Hanaki & Eizo Akiyama & Yukihiko Funaki & Ryuichiro Ishikawa, 2017. "Diversity in Cognitive Ability Enlarges Mispricing in Experimental Asset Markets," GREDEG Working Papers 2017-08, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    9. Duchêne, Sébastien & Guerci, Eric & Hanaki, Nobuyuki & Noussair, Charles N., 2019. "The effect of short selling and borrowing on market prices and traders’ behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    10. Hirota, Shinichi & Huber, Juergen & Stöckl, Thomas & Sunder, Shyam, 2022. "Speculation, money supply and price indeterminacy in financial markets: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1275-1296.
    11. Aragón, Nicolás & Roulund, Rasmus Pank, 2020. "Confidence and decision-making in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 688-718.
    12. Ahrens, Steffen & Bosch-Rosa, Ciril & Roulund, Rasmus, 2019. "Price Dynamics and Trader Overconfidence," Rationality and Competition Discussion Paper Series 161, CRC TRR 190 Rationality and Competition.
    13. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2017. "It is Not Just Confusion! Strategic Uncertainty in An Experimental Asset Market," Economic Journal, Royal Economic Society, vol. 127(605), pages 563-580, October.
    14. Roger, Tristan & Roger, Patrick & Willinger, Marc, 2022. "Number sense, trading decisions and mispricing: An experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 135(C).
    15. Halim, Edward & Riyanto, Yohanes E., 2020. "Asset markets with insider trading disclosure rule and reselling constraint: An experimental analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    16. Michailova, Julija, 2010. "Overconfidence and bubbles in experimental asset markets," MPRA Paper 26388, University Library of Munich, Germany.
    17. Shinichi Hirota & Juergen Huber & Thomas Stock & Shyam Sunder, 2018. "Speculation and Price Indeterminacy in Financial Markets: An Experimental Study," Cowles Foundation Discussion Papers 2134, Cowles Foundation for Research in Economics, Yale University.
    18. Nobuyuki Hanaki & Angela Sutan & Marc Willinger, 2016. "The Strategic Environment Effect in Beauty Contest Games," GREDEG Working Papers 2016-05, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    19. Tomoe Hoshihata & Ryuichiro Ishikawa & Nobuyuki Hanaki & Eizo Akiyama, 2017. "Flat Bubbles in Long-Horizon Experiments: Results from two Market Conditions," GREDEG Working Papers 2017-32, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    20. Martin G Kocher & Konstantin E Lucks & David Schindler, 2019. "Unleashing Animal Spirits: Self-Control and Overpricing in Experimental Asset Markets," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2149-2178.

    More about this item

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-01622466. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.