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Asset Bubbles and Rationality: Additional Evidence from Capital Gains Tax Experiments

Lei, Vivian and Noussair, Charles and Plott, Charles R. (2002) Asset Bubbles and Rationality: Additional Evidence from Capital Gains Tax Experiments. Social Science Working Paper, 1137. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20140317-152859749

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Abstract

[Introduction] The remarkable phenomenon of bubbles and crashes in laboratory asset markets was first discovered and reported in Smith et al (1988). Subsequent research inquired about the robustness of the phenomenon and how it might be explained. One interpretation of the data is that public knowledge of rationality is lacking in the subjects, which leads to a type of individually rational, bubble creating speculation as part of an attempt to acquire capital gains. A different interpretation is that subjects begin with a type of confusion or mistaken understanding about this particular environment and that such “irrationality” at the individual level initiates the bubble, which could be sustained by a lack of common knowledge of rationality even after all confusion becomes removed during the process of participating in the market. This paper explores these two ideas through the study of experiments in which a capital gains tax is imposed that makes speculation for capital gains unprofitable except under extreme circumstances.


Item Type:Report or Paper (Working Paper)
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:1137
Record Number:CaltechAUTHORS:20140317-152859749
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20140317-152859749
Official Citation:Lei, Vivian and Noussair, Charles and Plott, Charles R. (2002) Asset Bubbles and Rationality: Additional Evidence from Capital Gains Tax Experiments. Pasadena, CA: California Institute of Technology, 2002. Social Science Working Paper, 1137.
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:44370
Collection:CaltechAUTHORS
Deposited By: Susan Vite
Deposited On:27 Mar 2014 21:48
Last Modified:03 Oct 2019 06:17

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