Hommes, C., Kopányi-Peuker, A. and Sonnemans, J. (2021). Bubbles, crashes and information contagion in large-group asset market experiments Experimental Economics, 24(2):414–433.
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Affiliated authors
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Publication year2021
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JournalExperimental Economics
We study the emergence of bubbles in a laboratory experiment with large groups of individuals. The realized price is the aggregation of the forecasts of a group of individuals, with positive expectations feedback through speculative demand. When prices deviate from fundamental value, a random selection of participants receives news about overvaluation. Our findings are: (i) large asset bubbles are robust in large groups, (ii) information contagion through news affects behaviour and may break the coordination on a bubble, (iii) time varying heterogeneity provides an explanation of bubble formation and crashes, and (iv) bubbles are strongly amplified by coordination on trend-extrapolation.