(A)symmetric Information Bubbles: Experimental Evidence
Abstract: Asymmetric information has been necessary to explain a bubble in past theoretical models. This study experimentally analyzes traders? choices, with and without asymmetric information, based on the riding-bubble model. We show that traders have an incentive to hold a bubble asset for longer, thereby expanding the bubble in a market with symmetric, rather than asymmetric information. However, when traders are more experienced, the size of the bubble decreases, in which case bubbles do not arise, with symmetric information. In contrast, the size of the bubble is stable in a market with asymmetric information.
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Description: Full text
Provider: Federal Reserve Bank of Dallas
Part of Series: Globalization Institute Working Papers
Publication Date: 2017-04-01
Pages: 45 pages