2001/07/01 by Vivian Lei, Charles Noussair, Charles R. Plott · 1 citation
Economics, Econometrics and Finance · Social Sciences · #Financial Markets and Investment Strategies #Complex Systems and Time Series Analysis #Experimental Behavioral Economics Studies #Irrationality #Speculation #Rationality #Asset (computer security) #Economics #Financial economics #Common knowledge (logic) #Economic bubble #Monetary economics #Microeconomics #Positive economics #Finance #Epistemology #Philosophy #Computer science #Computer security
paper · doi:10.1111/1468-0262.00222
openalex publication_date 2001/07/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/01
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.