Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?
Reshmaan N. Hussam, David Porter and Vernon L. Smith
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| Article Citation |
Hussam, Reshmaan N., David Porter, and Vernon L. Smith. 2008. "Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?" American Economic Review, 98(3): 924–37.
DOI:10.1257/aer.98.3.924
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| Abstract |
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.
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| Article Full-Text Access |
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| Additional Materials |
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| Authors |
Hussam, Reshmaan N. (MIT)
Porter, David (Economic Science Institute, Chapman U)
Smith, Vernon L. (Economic Science Institute, Chapman U)
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| JEL Classifications |
D83: Search; Learning; Information and Knowledge; Communication; Belief
C91: Design of Experiments: Laboratory, Individual
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