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The influence of investment experience on market prices: laboratory evidence

Published online by Cambridge University Press:  14 March 2025

Jürgen Huber ,
Michael Kirchler  and
Thomas Stöckl
Jürgen Huber*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, Austria
Michael Kirchler*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, Austria Centre for Finance, University of Gothenburg, P.O. Box 600, 40530 Gothenburg, Sweden
Thomas Stöckl*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, Austria
*
[email protected]
[email protected]
[email protected]
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Abstract

We run laboratory experiments to analyze the impact of prior investment experience on price efficiency in asset markets. Before subjects enter the asset market they gain either no, positive, or negative investment experience in an investment game. To get a comprehensive picture about the role of experience we implement two asset market designs. One is prone to inefficient pricing, exhibiting bubble and crash patterns, while the other exhibits efficient pricing. We find that (i) both, positive and negative, experience gained in the investment game lead to efficient pricing in both market settings. Further, we show that (ii) the experience effect dominates potential effects triggered by positive and negative sentiment generated by the investment game. We conjecture that experiencing changing price paths in the investment game can create a higher sensibility on changing fundamentals (through higher salience) among subjects in the subsequently run asset market.

Keywords

Experimental financeAsset marketBubbleMispricingInformationExperience

JEL classification

D84: Expectations • Speculations G10: General C92: Laboratory, Group Behavior
Type
Original Paper
Information
Experimental Economics , Volume 19 , Issue 2 , June 2016 , pp. 394 - 411
Copyright
Copyright © 2015 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (doi:https://doi.org/10.1007/s10683-015-9445-0) contains supplementary material, which is available to authorized users.

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