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

speculative investor behavior and learning as traders learn about the true distribution of some asset s dividends a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before complete learning has occurred small differences in prior beliefs lead to large speculative premiums during the learning process this phenomenon helps explain a paradox concerning the pricing of initial public offerings the result casts light on the significance of the common prior assumption in economic models

comparative advantage in demand and the development of rice value chains in west africa summary national rice development strategies in africa are often supply focused and implicitly assume that consumers will readily substitute imported for domestic rice however due to increasing import dependency urban consumer preferences for rice have become biased toward asian export quality standards against which african rice has difficulties to compete anecdotal evidence suggests that this import bias is higher in cities close to the port and remote from the geographical centers of cultural heritage where african rice was domesticated more than 3 000 years ago we purposely select a sample of five west african urban markets which are supplied by both foreign and domestic rice value chains and which are located at varying distances from the nearest ports and centers of cultural heritage and conduct framed field experiments based on auctions to analyze the drivers of urban demand for domestic rice with upgraded quality characteristics we find that west african rice has increasing difficulties competing against imported rice on urban markets the more consumers appreciate characteristics of imported asian rice the closer to the port and the further the geographical and genealogical distance from rice cultural heritage these challenges provide crucial insights into value chain upgrading in policy makers struggle to achieve rice self sufficiency in west africa our findings suggest that the optimal portfolio of investment in value chain upgrading is a function of the targeted end market and its distance from the port and rice cultural heritage the closer the end market is located toward the port the more investment is needed in lifting demand of domestic rice through quality upgrading branding and promotion to enable it to compete against imported rice proximity to centers of cultural heritage on the other hand endows rice value chains with a comparative advantage in demand requiring less investment in demand lifting and leaving more room for supply shifting investments

no bubble condition model free tests in housing markets we test for the existence of housing bubbles associated with a failure of the transversality condition that requires the present value of payments occurring infinitely far in the future to be zero the most prominent such bubble is the classic rational bubble we study housing markets in the united kingdom and singapore where residential property ownership takes the form of either leaseholds or freeholds leaseholds are finite maturity pre paid and tradeable ownership contracts with maturities often exceeding 700 years freeholds are infinite maturity ownership contracts the price difference between leaseholds with extremely long maturities and freeholds reflects the present value of a claim to the freehold after leasehold expiry and is thus a direct empirical measure of the transversality condition we estimate this price difference and find no evidence of failures of the transversality condition in housing markets in the u k and singapore even during periods when a sizable bubble was regularly thought to be present

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

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

the bubble game an experimental study of speculation we propose a bubble game that involves sequential trading of an asset commonly known to be valueless because no trader is ever sure to be last in the market sequence the game allows for a bubble at the nash equilibrium when there is no cap on the maximum price we run experiments both with and without a price cap structural estimation of behavioral game theory models suggests that quantal responses and analogy based expectations are important drivers of speculation

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

extrapolation and bubbles abstract we present an extrapolative model of bubbles in the model many investors form their demand for a risky asset by weighing two signals an average of the asset s past price changes and the asset s degree of overvaluation and waver over time in the relative weight they put on them the model predicts that good news about fundamentals can trigger large price bubbles that bubbles will be accompanied by high trading volume and that volume increases with past asset returns we present empirical evidence that bears on some of the model s distinctive predictions

a welfare criterion for models with distorted beliefs this paper proposes a welfare criterion for economies in which agents have heterogeneously distorted beliefs instead of taking a stand on whose belief is correct our criterion asserts an allocation to be belief neutral ine cient if it is ine cient under any convex combination of agents beliefs while this criterion gives an incomplete ranking of social allocations it can identify negative sum speculation in a broad range of prominent models with distorted beliefs

the chinese warrants bubble in 2005 2008 over a dozen put warrants traded in china went so deep out of the money that they were almost certain to expire worthless nonetheless each warrant was traded more than three times each day at substantially inflated prices this bubble is unique in that the underlying stock prices make warrant fundamentals publicly observable and that warrants have predetermined finite maturities this sample allows us to examine a set of bubble theories in particular our analysis highlights the joint effects of short sales constraints and heterogeneous beliefs in driving bubbles and confirms several key findings of the experimental bubble literature jel g12 g13 o16 p34

to see is to believe common expectations in experimental asset markets abstract we experimentally manipulate agents information regarding the rationality of others in a setting in which previous studies have found irrationality to be present namely the asset market experiments introduced by smith et al 1988 recent studies suggest that mispricing in such markets may be an artefact of confusion which can be reduced by training subjects to understand the diminishing fundamental value we reconsider this view and propose that when it is made public knowledge that training has occurred this may also reduce uncertainty over the behavior of others and facilitate the formation of common expectations our design disentangles the direct effect of training from the indirect effect of its public knowledge and our results demonstrate a distinct and statistically significant effect of public knowledge over and above that of training alone

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

the bubble game a classroom experiment we propose a simple classroom experiment on speculative bubbles the bubble game this game is useful to discuss about market efficiency and trading strategies in a financial economics course and about behavioral aspects in a game theory course at all levels the bubble game can be played with any number of students as long as this number is strictly greater than one students sequentially trade an asset which is publicly known to have a fundamental value of zero if there is no cap on asset prices speculative bubbles can arise at the nash equilibrium because no trader is ever sure to be last in the market sequence otherwise the nash equilibrium involves no trade bubbles usually occur with or without a cap on prices traders who are less likely to be last and have less steps of reasoning to perform to reach equilibrium are in general more likely to speculate

the new internationalization of agriculture a reformulation abstract our research on the new internationalization of agriculture builds on analyses of the internationalization of capital and the new international division of labor but reformulates internationalization as a contingent political and economic process we argue that shifts in the institutional structure of capitalism in the 1980s profoundly altered national policy options and agro food markets states such as mexico puerto rico and the dominican republic have been compelled to promote agricultural exports typically at the expense of national food security while southern states pursue a common goal of international competitiveness this involves a varied process of domestic restructuring and differentiates states within the world economy

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

the relative performance of five alternative warrant pricing models five warrant pricing models are examined in this study a pair based on the black scholes model a pair based on the constant elasticity of variance cev modification and an extendible warrant model a la longstaff based on more than 20 000 warrant price observations the flexible exponent cev model generates the lowest average absolute pricing error in most of the warrants examined the dilution adjusted black scholes model however remains a reasonable economical alternative in many cases

the effect of short selling on bubbles and crashes in experimental spot asset markets a series of experiments illustrate that relaxing short selling constraints lowers prices in experimental asset markets but does not induce prices to track fundamentals we argue that prices in experimental asset markets are influenced by restrictions on short selling capacity and limits on the cash available for purchases restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner a simulation model based on delong et al 1990 generates average price patterns that are similar to the observed data asset market bubbles are persistent deviations of prices from fundamentals to the extent that bubbles exist they can influence investment levels and the allocation of capital and thereby have considerable economic effects in recognition of their potential importance the question of the existence and pervasiveness of bubbles has been a focus of extensive empirical investigation see e g shiller 1981 blanchard and watson 1982 diba and grossman 1988 and west 1988 these studies yield mixed results regarding the empirical relevance of bubble phenomena one source of the differences in conclusions may be that because the fundamental value of the assets cannot be observed tests of the presence of bubbles are joint tests with the particular specification of the process guiding the evolution of fundamentals also being tested the availability of short selling is widely believed to make bubble formation less likely one rationale for such a belief is the notion that the cause of asset market bubbles is a constraint on the ability of traders to speculate on future downward price movements see e g miller 1977 jarrow 1980 diamond and verrecchia 1987 or figlewski and webb 1993 in the absence of short sales traders may sell only the shares in their portfolios the availability of short sales relaxes this constraint in this paper we study empirically the effect of allowing short sales on both the incidence and magnitude of market bubbles we choose a setting in which the fundamental value of the asset is clearly and unambiguously defined and known at all times and bubbles typically occur namely we use the experimental environment that smith suchanek and williams 1988 introduce while

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

agricultural commercialization of karen hill tribes in northern thailand based on a random sample of 240 farm households in chiang mai province thailand this study shows that contrary to widespread belief karen farm households are well integrated into markets average levels of market integration are 31 for gross farm output 35 for variable inputs 49 for food consumption and 80 for net family income by estimating a two stage least squares 2sls regression model this study finds that integration into output markets is positively associated with a diversification of land use away from rice monoculture more intense contact with nearby urban centers and a greater number of roads connecting the village to the outside world controlling for these factors the distance to urban centers does not impede market integration distant villages are equally well integrated into output markets the study further finds that integration into output markets improves farm productivity and net per capita income concerns about market integration are discussed results have implications for thai policy makers who have recently placed increasing emphasis on the concept of sufficiency economy in order to promote the well being of rural people

margin short selling and lotteries in experimental asset markets the robustness of bubbles and crashes in markets for assets with finite lives is perplexing this paper reports the results of experimental asset markets in which participants trade two assets in some markets price bubbles form in these markets traders pay higher prices for the asset with lottery characteristics i e a claim on a large unlikely payoff however institutional design has a significant impact on deviations in prices from fundamental values particularly for an asset with lottery characteristics price run ups and crashes are moderated when traders finance purchases of the assets themselves and are allowed to short sell

bubbles and experience an experiment with a steady inflow of new traders we revisit the effect of traders experience on price bubbles by introducing either one third or two thirds steady inflow of new traders in each of four consecutive experimental asset markets we find that bubbles are still reduced in the treatments with a steady inflow of new traders but at a slower pace compared to the baseline treatment in which new traders are only introduced in the last market our analysis of individual trading behavior shows that the slower abatement of bubbles in the inflow treatments can be attributed mainly to the inexperienced traders who make more mistakes than experienced traders

embracing the global in thailand activism and pragmatism in an era of deagrarianization abstract today few farmers in thailand rely solely on agriculture to meet their needs rural households are dividing their time between farm and nonfarm activities constructing livelihoods that are increasingly hybrid both spatially and sectorally many of the new opportunities also have an important global element this paper contends that embracing the global is essential for many households who are land short farming shy and consumption inclined this offers the prospect of a profound shift in the trajectory of rural change in thailand as these processes intersect

futures contracting and dividend uncertainty in experimental asset markets prices in experimental asset markets tend to bubble and then crash to dividend value at the end of the asset s useful life explanations for this phenomenon are 1 that participants cannot form reliable future price expectations or 2 dividend risk aversion we report the results of experiments to test these hypotheses in one experimental series a futures market is introduced so that participants can obtain information on future share prices in another series of experiments the per period dividend is known with certainty the futures market treatment reduced the bubble the certain dividend treatment had little effect on the character of bubbles with inexperienced traders copyright 1995 by university of chicago press

finite bubbles with short sale constraints and asymmetric information abstract we present a finite period general equilibrium model of an exchange economy with asymmetric information we say that a rational expectations equilibrium exhibits a strong bubble if the price is higher than the dividend with probability one we show that necessary conditions for a strong bubble to occur are that 1 each agent must have private information in the period and state in which the bubble occurs 2 each agent must be short sale constrained at some period in the future with positive probability and 3 agents trades are not common knowledge we present examples of bubbles when the necessary conditions are satisfied journal of economic literature classification numbers c72 d52 d82 d84 g12 g14

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

asset float and speculative bubbles we model the relationship between asset float tradeable shares and speculative bubbles investors with heterogeneous beliefs and short sales constraints trade a stock with limited float because of insider lockups a bubble arises as price overweighs optimists beliefs and investors anticipate the option to resell to those with even higher valuations the bubble s size depends on float as investors anticipate an increase in float with lockup expirations and speculate over the degree of insider selling consistent with the internet experience the bubble turnover and volatility decrease with float and prices drop on the lockup expiration date

speculation spillovers this paper demonstrates that speculative activities can be contagious and spill over across markets specifically we test the hypothesis that during china s warrants bubble period speculative activities in the warrants market grabbed investors attention and caused them to trade more speculatively in the underlying stocks consistent with this hypothesis we find that turnover and return volatility of the underlying stocks are positively associated with the warrants unexpected turnover and price deviation from their fundamental values during the previous day controlling for information driven trading and hedging motives and that such a spillover effect is more pronounced when warrants attract more investor attention data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1914 this paper was accepted by wei xiong finance