Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality

Abstract

We report the results of an experiment designed to study the role of speculation in the formation of bubbles and crashes in laboratory asset markets. In a setting in which speculation is not possible, bubbles and crashes are observed. The results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation, but rather by behavior that itself exhibits elements of irrationality. Much of the trading activity that accompanies bubble formation, in markets where speculation is possible, is due to the fact that there is no other activity available for participants in the experiment.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 507 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.