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An Asset Market Test of a Mechanism For Inducing Stochastic Horizons in Experiments

Camerer, Colin F. and Weigelt, Keith (1996) An Asset Market Test of a Mechanism For Inducing Stochastic Horizons in Experiments. In: Research in Experimental Economics. Vol.6. JAI Press , Greenwich, CT, pp. 213-238. ISBN 1-55938-607-X http://resolver.caltech.edu/CaltechAUTHORS:20110224-140334251

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Abstract

Laboratory experiments have proved useful for testing whether finite- horizon models adequately represent market behavior (e.g., Forsythe, Palfrey, and Plott, 1982; Smith, Suchanek, and Williams. 1988). However, behavior in finite settings can be theoretically different from behavior in infinite settings which arc otherwise identical. The inability to operationalize the important features of an infinite horizon has hampered efforts to test behavior which can only arise in infinite horizon models. The quest for such mechanisms is worthwhile because much interesting economic behavior can only occur (in theory) in such settings. For instance, prices can contain arbitrary speculative bubbles under general conditions if assets are infinitely-lived (see Tirole 1982, 1985). If assets arc finitely-lived, rational bubbles are ruled out by backward induction. While bubbles may still occur (and do), it would be useful to have a mechanism which can mimic an infinite-horizon setting in experiments which are necessarily limited in length (see Lucas 1986, p. S421). We report a test of one possible mechanism in market experiments.


Item Type:Book Section
Additional Information:© 1996 JAI Press Inc.
Record Number:CaltechAUTHORS:20110224-140334251
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20110224-140334251
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:22479
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:08 Mar 2011 19:00
Last Modified:08 Mar 2011 19:00

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