Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 588: Bubbles and Experience: An Experiment on Speculation

Martin Dufwenberg (), Tobias Lindqvist and Evan Moore ()
Additional contact information
Martin Dufwenberg: Economics of Department, Postal: Stockholm University, SE-106 91 Stockholm, Sweden
Tobias Lindqvist: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Evan Moore: Auburn University Montgomery, Postal: P.O. Box 244023,Montgomery, AL 36124-4023, U.S.

Abstract: We investigate experimentally how the share of experienced traders in double-auction asset markets affects trading, in particular the occurrence of bubble-crash pricing patterns. In each session, six subjects trade in three successive market rounds and gain experience. In a fourth round, depending on the treatment, two or four experienced subjects are replaced by inexperienced subjects. The results are compared to earlier findings when all traders were either inexperienced or experienced. We explore what can be learned by analogy between these laboratory findings and the performance of naturally occurring markets.

Keywords: Asset Market; Bubble; Crash; Experience; Experiment; Speculation

JEL-codes: C92; G12

25 pages, January 20, 2003

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