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Ivanov, Asen,
Dan Levin, and
James Peck. 2009. "Hindsight, Foresight, and Insight: An Experimental Study of a Small-Market Investment Game with Common and Private Values."
,
99(4): 1484-1507.
Show Article Details
DOI: 10.1257/aer.99.4.1484
Abstract:We experimentally test an endogenous-timing investment model in which subjects
privately observe their cost of investing and a signal correlated with the
common investment return. Subjects overinvest, relative to Nash. We separately
consider whether subjects draw inferences, in hindsight, and use foresight to
delay profitable investment and learn from market activity. In contrast to Nash,
cursed equilibrium, and level-k predictions, behavior hardly changes across
our experimental treatments. Maximum likelihood estimates are inconsistent
with belief-based theories. We offer an explanation in terms of boundedly rational
rules of thumb, based on insights about the game, which provides a better fit
than quantal response equilibrium. (JEL C72, D82, D83, G11)
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Authors:
Ivanov, Asen (VA Commonwealth U)
Levin, Dan (OH State U)
Peck, James (OH State U)
JEL Classifications:
C72: Noncooperative Games
D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief
G11: Portfolio Choice; Investment Decisions
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