We report from 15 laboratory asset markets where we examine the effect of a bonus incentive on asset bubble formation. In contrast to previous studies with similar settings, only three of our 15 markets bubble. Our results demonstrate that a bonus incentive does not induce subjects to trade above fundamental value and the outcome suggests that the use of highly sophisticated subjects significantly reduces decision error and speculation within markets. Moreover, the experimental results show that a bonus incentive does increase market activity, and contrary to other studies increased turnover is not a result of decision error or speculation but rather due to increased competitive behavior of the subjects.
Contents
Introduction
Introduction to Asset Bubbles
Disposition
Introduction to the Experimental Asset Market
Previous Findings
Theoretical Approach
Our Contribution
Hypotheses
Method
Experimental Design
Justifications for Method
Statistical Method
Measures of Bubble Characteristics
The Mann Whitney U Statistic
Wilcoxon Signed Rank Test for Paired Samples
The Bowman-Shelton Test for Normality
Experimental Results
Results
Analysis
Conclusion
Discussion
Summary
References
Appendix
Author: Alexandra Nilsson,Inga Svinhufvud
Source: Stockholm School of Economics