Abstract
We investigate the relation between the motive of greed and several asset market indicators such as trading activity and bubble formation in the form of mispricing, overpricing, and price amplitude. To that end, we run experiments in which we are able to measure individuals’ greed and create markets populated with greedy and markets with non-greedy investors. High-greed markets exhibited less frequent and smaller price bubbles than markets with less greedy traders. As for trading activity, we find only small evidence of greedier individuals showing higher trading activity. If our findings translate to actual markets, our findings suggest that, contrary to common suggestions, greed might not contribute negatively to the emergence of financial crises.
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