Bubbles and Experience: An Experiment on Speculation

We investigate experimentally how the share of experienced traders in doubleauction asset markets affects trading, in particular the occurrence of bubble-crash pricing patterns. In each session, six subjects trade in three successive market rounds and gain experience. In a fourth round, depending on the treatment, two or four experienced subjects are replaced by inexperienced subjects. The results are compared to earlier findings when all traders were either inexperienced or experienced. We explore what can be learned by analogy between these laboratory findings and the performance of naturally occurring markets.