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Working Paper
Asset prices and informed traders' abilities: evidence from experimental asset markets
This study reports the results of fifteen experimental asset markets designed to investigate the effects of forecasts on market prices, traders' abilities to assess asset value, and the link between the two. Across the fifteen markets, the authors investigate alternative forecast-generating processes. In some markets the process produces an unbiased estimate of asset value and in others a biased estimate. The processes generating the biased forecasts, though, are less variable than the process generating the unbiased forecast. The authors find that, in general, period-end asset price reflects ...
Working Paper
The effect of forecast bias on market behavior: evidence from experimental asset markets
This paper reports the results of 15 experimental asset markets designed to investigate the effect of optimistic forecast bias on market behavior. Each market is organized as a double oral auction in which participants trade a single-period asset with uncertain value. Traders are informed of the asset value distribution and, prior to trading, given the opportunity to acquire a forecast of the asset's period-end value. The degree of forecast bias is manipulated across experimental sessions so that in some sessions the forecast contains a systematic, upward (low or high) bias. We conduct ...
Working Paper
What's in a name? An experimental examination of investment behavior
A fundamental unresolved issue is whether information asymmetries underlie investors' predisposition to invest close to home (i.e., domestically or locally). The authors conduct experiments in the United States and Canada to investigate agents' portfolio allocation decisions, controlling for the availability of information. Providing participants with information about a firm's home base, without disclosing its specific identity, is not sufficient to change investment behavior. Rather, participants need to know a firm's name and home base. Additional evidence indicates that participants are ...
Working Paper
Uncertain litigation cost and seller behavior: Evidence from an auditing game
This paper reports the results of two experiments, each consisting of six sessions, designed to investigate difficulties that arise in estimating expected litigation costs in an auditing game. In each experimental session, the game consists of a series of periods in which sellers submit sealed offers to computerized buyers and, if hired, choose an effort level (low or high). The effort level affects the certain (direct) and uncertain (litigation) costs of performing the engagement. Across the two experiments, we vary the uncertainty surrounding the determination of the expected litigation ...