Discussion Paper

No. 2019-32 | May 06, 2019
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 do 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.

JEL Classification:

C90, D47, D80

Assessment

  • Downloads: 138

Links

Cite As

Didier Sornette, Sandra Andraszewicz, Ke Wu, Ryan O. Murphy, Philipp Rindler, and Dorsa Sanadgol (2019). Overpricing persistence in experimental asset markets with intrinsic uncertainty. Economics Discussion Papers, No 2019-32, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2019-32


Comments and Questions


Anonymous - Invited Reader Comment
June 12, 2019 - 09:29

see attached file


Sandra Andraszewicz - Reply to comment #1
June 19, 2019 - 10:52

Thank you very much for this useful and constructive comment. In the revised version, we will include and describe in the introduction the very recent paper by Crockett, Duffy and Izhakian (2019) that contributes to our finding on mis-pricing under uncertainty. Also, in the section "New paradigm", we will explain ...[more]

... how the order book was implemented in our design.

Once again, thank you for the helpful comment.

Sandra Andraszewicz
(on behalf of the co-authors)


Anonymous - Referee Report 1
June 25, 2019 - 08:08

see attached file


Sandra Andraszewicz - Reply to Referee #1
July 19, 2019 - 09:40

Thank you for your comments and feedback. We provide detailed replies in the attached file.