Abstract
One explanation for overpricing on asset markets is a lack of traders’ self-control. We implement the first experiment to address the causal relationship between self-control and systematic overpricing on financial markets. Our setup detects some of the channels through which low individual self-control could transmit into irrational exuberance in markets. Our data indicate a large direct effect of reduced self-control on market overpricing. Low self-control traders report stronger emotions after the market.
Highlights
In order to calculate mean prices one can use either an adjustment that takes trading volumes into account (: volume-adjusted prices) or an adjustment that takes the number of trades into account (: trade-adjusted prices)
The former is an average price per asset, whereas the latter is an average price per trade
We provide causal empirical evidence for the notion that a lack of self-control can fuel overpricing on asset markets
Summary
Provided in Cooperation with: University of Munich (LMU) and Humboldt University Berlin, Collaborative Research Center Transregio 190: Rationality and Competition. Suggested Citation: Kocher, Martin; Lucks, Konstantin; Schindler, David (2018) : Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets, Discussion Paper, No 81, Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition, München und Berlin. Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public.
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