Overpricing persistence in experimental asset markets with intrinsic uncertainty

Abstract

To study coordination in complex social systems such as financial markets, the authors introduce a new prediction market set-up that accounts for fundamental uncertainty. Nonetheless, the market is designed so that its total value is known, and thus its rationality can be evaluated. In two experiments, the authors observe that quick consensus emerges early yielding pronounced mispricing, which however does not show the standard "bubble-and-crash". The set-up is implemented within the xYotta collaborative platform (https://xyotta.com). xYotta's functionality offers a large number of extensions of various complexity such as running several parallel markets with the same or different users, as well as collaborative project development in which projects undergo the equivalent of an IPO (initial public offering) and whose subsequent trading matches the role of financial markets in determining value. xYotta is thus offered to researchers as an open source software for the broad investigation of complex systems with human participants.

Behavioural Effects and Market Dynamics in Field and Laboratory Experimental Asset Markets

“…The field study described here corresponds to Experiment 2 in [ 17 ], which provides in depth details of this experiment. We decided to replicate Experiment 2 in the laboratory, because it included important improvements in comparison to Experiment 1.…”

“…Despite these features, Ref. [ 17 ] found substantial mispricing of the market. This mispricing pattern departs from the typical “bubble-crash-scenario” often found in the SSW experimental asset markets [ 34 ] but these differences could partially be attributed to the differences in dividend structure.…”

“…Thirty six students of a Swiss University were recruited over the UAST database ( ) to participate in a trading competition experiment. From the UAST participant pool, we selected students with majors (engineering, natural sciences and social sciences such as management and economics) that matched the background of the participants in [ 17 ]. In the invitation e-mail, we informed participants that, in the study, they would compete against other participants and that the compensation will be competitive.…”

“…Finally, we aimed to close the gap on the field-lab comparison for experimental asset markets with multiple securities. For this purpose, we replicate in the laboratory the framed field study [ 16 ] conducted by [ 17 ], using the same experimental material and the same type of participants. The design of [ 17 ] is sufficiently engaging as a field study conducted over a few days, while being simple enough to be run within one experimental session.…”

“…For this purpose, we replicate in the laboratory the framed field study [ 16 ] conducted by [ 17 ], using the same experimental material and the same type of participants. The design of [ 17 ] is sufficiently engaging as a field study conducted over a few days, while being simple enough to be run within one experimental session. This property allows for testing the impact of experimentation in the artificial laboratory environment on the experimental results and behavioural dynamics of the study participants.…”