bubbles and experience an experiment we investigate the occurrence of bubble crash pricing patterns in laboratory financial markets with a mixture of experienced and inexperienced traders we find that even with a minority of experienced traders bubbles are substantially abated

stochastic equilibria existence spanning number and the no expected financial gain from trade hypothesis stochastic equilibria under uncertainty with continuous time security trading and consumption are demonstrated in a general setting a common question is whether the current price of a security is an unbiased predictor of the future price of the security plus intermediate dividends this is the hypothesis of no expected financial gains from trade the relevance of this hypothesis in multi good economies is called into question by the following demonstrated fact for each set of probability assessments there exists a corresponding equilibrium one with the original agents original equilibrium allocations and no expected financial gains from trade under the given probability assessments the spanning number of the economy is defined as the fewest number of security markets required to sustain a complete markets equilibrium in a dynamic sense made precise in the paper the spanning number is linked directly to agent primitives in particular the manner in which new information resolves uncertainty over time the spanning number is shown to be invariant under bounded changes in expectations several examples are given in which the spanning number is finite even though the number of potential states of the world is infinite

the term structure of interest rates in a partially observable economy this paper investigates the term structure of interest rates in a multiperiod production and exchange economy with incomplete information unable to observe their stochastic investment opportunities investors engage in dynamic bayesian inference this results in the endogenous identification of a more complex production function which generates a richer term structure resembling the one that actual market prices imply in addition this paper introduces a characteristic function of the term structure and demonstrates that in contrast with a fully observable economy the widely investigated expectations hypothesis holds true only if interest rates are nonstochastic this paper investigates the term structure of interest rates in a dynamic production and exchange economy with an unobservable productivity factor in order to estimate the unobservable stochastic investment opportunities rational investors engage in dynamic bayesian inference anticipated changes in investors quality of information about the fluctuations of the economic state variable affect equilibrium demands and prices this results in the endogenous identification of a more complex production function which induces a richer term structure term structures of interest rates in a partially observable economy resemble term structure curves that actual market prices imply this paper also introduces a characteristic function of the term structure and demonstrates that in contrast with a fully observable economy the widely investigated expectations

thar she bursts reducing confusion reduces bubbles to explore why bubbles frequently emerge in the experimental asset market model of smith suchanek and williams 1988 we vary the fundamental value process constant or declining and the cash to asset value ratio constant or increasing we observe high mispricing in treatments with a declining fundamental value while overvaluation emerges when coupled with an increasing c a ratio a questionnaire reveals that the declining fundamental value process confuses subjects as they expect the fundamental value to stay constant running the experiment with a different context stocks of a depletable gold mine instead of stocks significantly reduces mispricing and overvaluation as it reduces confusion jel c91 d14 g11 g12

it is not just confusion strategic uncertainty in an experimental asset market to what extent is the observed mispricing in experimental asset markets caused by strategic uncertainty and by confusion we address this question by comparing subjects initial price forecasts in two market environments one with six human traders and the other with one human and five computer traders we find that both strategic uncertainty and confusion contribute equally to the median initial forecast deviation from the fundamental value the effect of strategic uncertainty is greater for subjects with a perfect score in the cognitive reflection test and it is not significant for those with low scores

understanding overbidding in second price auctions an experimental study we present results from second price private value auction spa experiments where bidders may receive noisy signals about their opponentsvalue such signals change biddersperception about the strengthof their opponent and the relationship between biddersperception of their opponent and overbidding provides a novel channel to understand overbidding in spa we found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values supporting a modifiedjoy of winninghypothesis but large overbids are more likely to occur when bidders believe their opponents to have much higher values consistent with thespite hypothesis second price private value auctions spas are the most easily understood auction format from a theoretical point of view 1 in standard private value auction models of fully rational bidders with standard preferences bidding one s own value is a weakly dominant strategy this theoretical prediction holds irrespective of biddersrisk atti tudes the number of rival bidders symmetry in the value distributions and so on in laboratory experiments however subjects are found to exhibit a consistent pattern of overbidding kagel et al 1987 found that the actual bids are on average 11 above the dominant strategy bids kagel and levin 1993 found that about 62 of all bids in their five bidder spa sessions exceed the bidder s value while only 8 of all bids were below it both kagel and levin 1993 and harstad 2000 further reported that experience has only a small effect in reducing overbidding in spa an important related finding is that overbidding in english auctions a mechanism that is strategically equivalent to the spa in the case of private values is known to be a short term phenomenon that subjects quickly learn not to undertake kagel and levin 1993 thus any explanation for the prevalence and persistence of overbidding in the spa must also explain its rarity in the english auction given the robustness of the findings of overbidding in spa it is surprising that economists have little understanding of why it happens kagel et al 1987 conjectured that bidding above one s own value in a spa is based on the illusion that it improves the probability of winning with little cost because the winner only pays the second highest bid 2 moreover they argue that overbidding is sustainable because bidders still on average earn positive profits and because the negative feedback from overbidding is a weak mechanism in the spa for example if a bidder overbids in a spa by 10 above her value it is quite possible that she does not win at all and thus does not experience

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

theories of share tenancy a critical survey for the past 2 decades the problems of agricultural tenancy have attracted a great deal of attention not only from agricultural economists but also from economists in general as a typical example of agencyprincipal contract relations despite the prolific growth of literature both theoretical and empirical there has been little convergence in opinions on tenancy contracts the divergence has been especially great on the understanding of the causes and the effects of sharecropping tenancy much confusion underlying the widely divergent perspectives has stemmed from partial treatments of contractual choice which unduly limit the optimizing behavior of contracting parties and the options of contract forms this essay aims at clarifying the sources of the confusion by reviewing the past literature in light of the more general theory of agency principal relations the agency theory in order to examine the problems of various theoretical models in a unified framework in section ii we first develop the basic framework of a general model of tenancy contract in section iii we clarify in terms of the general model contradictions latent in the traditional marshallian theory which asserts that share tenancy is inefficient because of the disincentive effect of cropsharing on the tenant s work effort in section iv we attempt to show that recent efforts to reconstruct the theory based on the traditional assumption have not yet been quite successful section v draws implications and testable hypotheses from more general theories incorporating the aspects of risk and uncertainty section vi tests allocational and distributional implications of those alternative hypotheses based on the summary of evidence col

traders expectations in asset markets experimental evidence we elicit traders predictions of future price trajectories in repeated experimental markets for a 15 period lived asset we find that individuals beliefs about prices are adaptive and primarily based on past trends in the current and previous markets in which they have participated most traders do not anticipate market downturns the first time they participate in a market and when experienced they typically overestimate the time remaining before market peaks and downturns occur when prices deviate from fundamental values belief data are informative to an observer in predicting the direction of future price movements and the timing of market peaks

how do experienced traders respond to inflows of inexperienced traders an experimental analysis we conducted asset market experiments where one experienced subject interacts with five inexperienced subjects to investigate how experienced subjects change their price forecasts and trading behavior when faced with strategic uncertainty caused by inflows of inexperienced subjects only half the experienced subjects initially forecasted prices deviating more from the fundamental values in the market with five inexperienced subjects than in the final round of the experiment in which they had previously participated furthermore the majority of our experienced subjects did not change their trading behavior many experienced subjects act as price stabilizers when the inflow of inexperienced subjects is not associated with other changes in market conditions

price bubbles and crashes in experimental call markets abstract price bubbles relative to intrinsic dividend value are observed using a call market trading institution market prices tend to track intrinsic value only when the same group of highly experienced traders participate in three consecutive 15 round markets

a quantitative easing experiment abstract we experimentally investigate the effect of a central bank buying bonds for cash in a quantitative easing qe operation in our experiment the bonds are perfect substitutes for cash and have a constant fundamental value which is not affected by qe in the rational expectations equilibrium we find that qe raises bond prices above those in the benchmark treatment without qe subjects in the benchmark treatment learned to trade the bonds at their fundamental value but those in treatments with qe became more convinced after repeated exposure to the same treatment that qe boosts bond prices this suggests the possibility of a behavioural channel for the observed effects of actual qe operations on bond yields

contract choice and enforcement in an agrarian community agricultural tenancy in upland java this study explores the conditions under which a certain contract is preferred to others through an intensive survey of an upland village in west java despite an obvious difficulty in enforcing the terms of share contract in a highly complex intercropping system no significant difference in allocative efficiency was found between share tenancy and other forms of land tenure the results indicate that share tenancy was chosen only by the landlords who had the ability to enforce contractual terms at a low opportunity cost

price dispersion in the lab and on the internet theory and evidence price dispersion is ubiquitous in settings that closely approximate textbook bertrand competition we show that only a little bounded rationality among sellers is needed to rationalize such dispersion a variety of statistical tests based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models suggest that bounded rationality based theories of price dispersion organize the data remarkably well evidence is also presented to suggest that the models are consistent with data from a leading internet price comparison site

the inflow effect trader inflow and price efficiency abstract we investigate the impact of cash and trader inflow on price efficiency in multi period experimental asset markets implementing eight treatments with 672 subjects we find that i the joint inflow of cash and traders triggers strong overvaluation and massive price run ups inflow effect remarkably the effect occurs in almost all of the 30 markets with joint cash and trader inflow and is very robust the effect even prevails in markets with complete and symmetric fundamental information we further show that ii in treatments with the joint inflow of cash and traders prices crash to fundamentals towards maturity of the asset the analysis of traders beliefs reveals that iii despite fundamental values staying constant beliefs about fundamentals co move with upwardly trending prices finally we report a speculative motive only among the optimists in treatments where we observe the inflow effect

heterogeneity of beliefs and trade in experimental asset markets we investigate the relationship between traders expectations and market outcomes with experimental asset market data the data show that those who have high price expectations buy more frequently and submit higher bids and those who hold low price expectations sell more frequently and submit lower bids traders who have more accurate expectations achieve greater earnings simulations using only belief data reproduce the pricing patterns observed in the market well indicating that the heterogeneity of expectations is a key to explaining market activity

an asian route to capitalism religious economy and the origins of self transforming growth in japan modern capitalism is a self transforming dynamic that proliferates market niches new products and techniques the industrial revolution could take place only in the context of preexisting agricultural capitalism that in turn required a breakout from the obstacles constituted by agrarian coercive societies organizational conditions necessary for self sustaining capitalist growth included markets not only for commodities but for all factors of production land labor and capital combined under control of entrepreneurs motivated by an economic ethic of future oriented calculation and investment weber was mistaken in holding that the capitalist breakthrough occurred only in christian europe the author proposes a neo weberian model in which the initial breakout from agrarian coercive obstacles took place within the enclave of religious organizations with monasteries acting as the first entrepreneurs the model is illustrated by the case of buddhism in late medieval japan the leading sector of monastic capitalism spread into the surrounding economy through religious movements of mass proselytization which narrowed the gap between clergy and laity confiscation of buddhist property at the transition to the tokugawa period transferred the capitalist dynamic to the secular economy of an agricultural mass market opening the way for a distinctive japanese path through the industrial revolution

bubbles and financial professionals the efficiency of financial markets and their potential to produce bubbles are central topics in academic and professional debates yet little is known about the contribution of financial professionals to price efficiency we run 116 experimental markets with 412 professionals and 502 students we find that professional markets with bubble drivers capital inflows or high initial capital supply are susceptible to bubbles although they are more efficient than student markets in mixed markets with students bubbles also occur but professionals act as price stabilizers we show that heterogeneous price beliefs drive overpricing especially in bubble prone market environments

existence of arrow radner equilibrium with endogenously complete markets under incomplete information abstract a stochastic pure exchange economy with incomplete information is studied where one risky asset and a locally riskless bond are traded the underlying risks are described by a k dimensional brownian motion with k 2 the brownian motion is not directly observable agents observe only asset prices and dividends existence of an arrow radner equilibrium is established in such an equilibrium asset prices result such that every informationally feasible consumption plan can be financed by trading in the risky asset and the bond in this sense the resulting asset market is complete journal of economic literature classification numbers g12 g14 d51

the impact of auction choice on revenue in treasury bill auctions an empirical evaluation abstract i evaluate whether uniform price or discriminatory auctions are revenue superior for selling treasury bills to this end i apply two structural econometric models hortacsu and mcadams 2010 and fevrier et al 2002 to a dataset on polish zero coupon bonds my secondary aim is to analyze mutual inconsistencies in prediction from these models i find that both agree on the revenue superiority of discriminatory auctions by between 0 01 and 1 5 the models predictions are contradictory in only 7 of auctions the large scale agreement of two vastly different models gives confidence that the conclusions on polish data are robust to varying many of the underlying economic and econometric assumptions and not likely just a modeling artifact

can relaxation of beliefs rationalize the winner s curse an experimental study we use a second price common value auction called the maximal game to experimentally study whether the winner s curse wc can be explained by models which retain best response behavior but allow for inconsistent beliefs we compare behavior in a regular version of the maximal game where the wc can be explained by inconsistent beliefs to behavior in versions where such explanations are less plausible we find little evidence of differences in behavior overall our study casts a serious doubt on theories that posit the wc is driven by beliefs

out of equilibrium bids in first price auctions wrong expectations or wrong bids deviations from risk neutral equilibrium bids in auctions can be related to inconsistent expectations with correct best replies or correct expectations but deviant best replies e g because of risk aversion regret quantal response mistakes to distinguish between these two explanations we use a novel experimental procedure and study expectations together with best replies in symmetric and asymmetric auctions we extensively test the internal validity of this setup we find that deviations from equilibrium bids do not seem to be because of to wrong expectations but because of deviations from a risk neutral best reply

urbanization and underdevelopment a global study of modernization urban bias and economic dependency the causes and effects of 3rd world urbanization have been addressed in theories of modernization urban bias and economic dependency but no single cross national study has tested the arguments advanced by all 3 theories this paper uses panel regression analysis to assess the validity of the 3 perspectives in 61 underdeveloped countries between 1960 and 1980 the modernization theory asserts that industrial employment attracts people to urban areas where they work in modern sector employment that facilitates national economic expansion the urban bias theory posits that the disparity in welfare between country and city increases rural to urban migration and thereby expands both urbanization and service informal employment dependency and world system arguments assert that foreign investment promotes both urbanization and service informal labor with foreign investment in agriculture pushing farmers townward and foreign investment in urban manufacturing pulling them there results suggest that underdeveloped nations are experiencing a gradual transition from an agrarian to a service and informal economy a transformation that impedes economic expansion unfavorable agricultural conditions alone will not push rural citizens to urban areas 2 theories help explain the relationship between relatives urbanization and economic growth if future studies of urbanization and underdevelopment are going to be useful then they must transcend current theoretical and ideological particularism

anomalous behavior in a traveler s dilemma the notion of a nash equilibrium has joined supply and demand as one of the two or three techniques that economists instinctively try to use first in the analysis of economic interactions moreover the nash equilibrium and closely related game theoretic concepts are being widely applied in other social sciences and even in biology where evolutionary stability often selects a subset of the nash equilibria many people are uneasy about the stark predictions of the nash equilibrium in some contexts where the extreme rationality assumptions seem implausible kaushik basu s 1994 traveler s dilemma is a particularly convincing example of a case where the unrelenting logic of game theory is at odds with intuitive notions about human behavior the story associated with the dilemma is that two travelers purchase identical antiques while on a tropical vacation their luggage is lost on the return trip and the airline asks them to make independent claims for compensation in anticipation of excessive claims the airline representative announces

intertemporal asset pricing with heterogeneous beliefs abstract we examine the behaviour of the interest rate asset prices and asset holdings in an economy with heterogeneous rationally updated beliefs about the expected rate of production growth the equilibrium interest rate is a weighted average of the interest rates that would prevail in economies populated by homogeneous agents with the beliefs of the respective agents in the heterogeneous model the weights are given by the fractions of total wealth held financial innovation affects the dynamics of allocations and prices but preserves the aggregate output process and the structure of equilibrium asset prices also display the wealth weighted average characterization journal of economic literature classification numbers c60 d52 d91 g12

nonspeculative bubbles in experimental asset markets lack of common knowledge of rationality vs actual irrationality 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

monetary policy bounded rationality and incomplete markets this paper extends the benchmark new keynesian model by introducing two frictions i agent heterogeneity with incomplete markets uninsurable idiosyncratic risk and occasionally binding borrowing constraints and ii bounded rationality in the form of level k thinking compared to the benchmark model we show that the interaction of these two frictions leads to a powerful mitigation of the effects of monetary policy which is more pronounced at long horizons and offers a potential rationalization of the forward guidance puzzle each of these frictions in isolation would lead to no or much smaller departures from the benchmark model

irrelevance of open market operations in some economies with government currency being dominated in rate of return this paper describes an environment in which government issued currency is dominated in rate of return and in which there obtains a modigliani miller theorem for government open market operations earlier modigliani miller theorems for government finance have been stated for environments in which government issued currency is not dominated in rate of return in equilibrium since government issued currency is widely observed to be dominated in return it is useful to study how modigliani miller theorems hinge on absence of rate of return dominance

effects of different ways of incentivizing price forecasts on market dynamics and individual decisions in asset market experiments in this study we investigate a whether eliciting future price forecasts influences market outcomes and b whether differences in the way in which subjects are incentivized to submit accurate price forecasts influence market outcomes as well as the forecasts in an experimental asset market we consider four treatments one without forecast elicitation and three with forecast elicitation in two of the treatments with forecast elicitation subjects are paid based on their performance in both forecasting and trading while in the other treatment with forecast elicitations they are paid based on only one of those factors which is chosen randomly at the end of the experiment we found no significant effect of forecast elicitation on market outcomes in the latter case thus to avoid influencing the behavior of subjects and market outcomes by eliciting price forecasts paying subjects based on either forecasting or trading performance chosen randomly at the end of the experiment is better than paying them based on both in addition we consider forecast only experiments one in which subjects are rewarded based on the number of accurate forecasts and the other in which they are rewarded based on a quadratic scoring rule we found no significant difference in terms of forecasting performance between the two

thar she blows can bubbles be rekindled with experienced subjects 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 jel c91 d83

productivity and distribution under cropsharing tenancy abstract this paper develops a model of sharecropping assuming tenant autonomy competitive behavior of landlords and laborers and endogenously determined wage and share rental rates the coexistence of wage labor and sharecropping is explained in terms of their incentive labor process and risk sharing characteristics sharecropping serves as a surrogate for the direct supervision of the labor process its incidence is shown to rise in the presence of unemployment at a subsistence wage the model implies that the abolition of tenancy will raise output raise labor income and reduce land income

endogenous completeness of diffusion driven equilibrium markets we study the existence of dynamic equilibria with endogenously complete markets in continuous time heterogenous agents economies driven by diffusion processes our main results show that under appropriate conditions on the transition density of the state variables market completeness can be deduced from the primitives of the economy in particular we prove that a sufficient condition for market completeness is that the volatility of dividends be invertible and provide higher order conditions that apply when this condition fails as is the case in the presence of fixed income securities in contrast to previous research our formulation does not require that securities pay terminal dividends and thus allows for both finite and infinite horizon economies

asset pricing in a production economy with incomplete information this paper analyzes an economy in which investors operate under partial information about technology relevant state variables it is shown that for gaussian information structures under incomplete observations the consumer s problem can be transformed into an equivalent program with a completely observed state the conditional expectation of the underlying unobservable state variables a consequence of this transformation is that classic results in finance remain valid under an appropriate reinterpretation of the state variables the static capital asset pricing model capm of sharpe 24 lintner 16 and mossin 20 states that the expected premium on any risky asset is proportional to the premium on the market as a whole this theoretical linear relationship however is subject to criticisms on two grounds first it does not seem to be supported by the empirical evidence second it is based on the premises of a constant opportunity set merton 19 subsequently relaxes this assumption and shows that when the opportunity set fluctuates over time due to changes in the state of the economy individual securities are also priced with respect to selected portfolios funds providing a hedge against unanticipated fluctuations 2 more recently breeden 3 has extended merton s results by emphasizing the role of aggregate consumption in pricing relationships in this paper we seek to further our understanding of asset pricing by relaxing the assumption that investors observe the state of the economy in the mertonbreeden framework observed state variables affect the means and variances of asset returns implying deformations of the opportunity set over time from a practical point of view it seems that this complete information assumption is violated investors in financial markets operate under partial knowledge of the microvariables which influence production and the returns on assets their decisions rely mostly on information through noisy channels such as newspapers technical reviews or weather reports in this paper we attempt to model such

a review of bubbles and crashes in experimental asset markets this paper discusses the literature on bubbles and crashes in the most commonly used experimental asset market design introduced by smith et al it documents the main findings based on the results from 41 published papers 3 book chapters and 20 working papers

economic interests and sectoral relations the undevelopment of capitalism in fifteenth century tuscany1 many preconditions for a rapid transition to industrial capitalism existed in tuscany in the late medieval early modern period including relatively efficient agricultural production a well developed commercial manufacturing sector the absence of a powerful feudal nobility and feudal obligations a large precocious urban economy and the development of a territorial state no such transition occurred however previous explanations for this are inadequate because they discount the strength of the tuscany economy or downplay the presence of these preconditions to explain the tuscan outcome this article draws on sectoral theories agriculture vs manufacturing from the neoclassical and marxist literature since these theories often give the wrong prediction because they are based on formal attributes of actors the author combines them with a weberian conceptualization of substantively specific economic interests