Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?
Document Type
Article
Publication Date
6-2008
Abstract
We report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and "error" elimination among participants in a laboratory asset market and its effect on price bubbles. Our answer to the title question is: "yes." We impose a large increase in liquidity and dividend uncertainty to shock the environment of experienced subjects who have converged to equilibrium, and this treatment rekindles a bubble. However, in replications of that same challenging environment across three experience levels, we discover that the environment yields a rare residual tendency to bubble even in the third experience session. Therefore, a caveat must be placed on the effect of twice-experienced subjects in asset markets: in order for price bubbles to be extinguished, the environment in which the participants engage in exchange must be stationary and bounded by a range of parameters. Experience, including possible "error" elimination, is not robust to major new environment changes in determining the characteristics of a price bubble.
Recommended Citation
Hussam, R., Porter, D., and Smith, V. "Thar She Blows: Can bubbles be rekindled with experienced subjects?" The American Economic Review, 98(3), pp. 924-937, June, 2008.
Peer Reviewed
1
Copyright
American Economic Association
Comments
This article was originally published in The American Economic Review, volume 98, issue 3, in 2008.
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