Traditional finance is built on the rationality paradigm. This chapter discusses simple models from an alternative approach in which financial markets are viewed as complex evolutionary systems. Agents are boundedly rational and base their investment decisions upon market forecasting heuristics....

We investigate expectation formation in a controlled experimental en-vironment. Subjects are asked to predict the price in a standard asset pricingmodel. They do not have knowledge of the underlying market equilibrium equa-tions, but they know all past realized prices and their own predictions....

We report the results of an experiment designed to study the determinants of asset price movement and consumption smoothing behavior across asset markets populated with varying proportion of traders with and without having induced motive to smooth consumption. Although the asset is over-priced...

We investigate the effect of gender on the price deviation (bubble) from the fundamental value in a learning-to-forecast experiment. Our results show that gender plays a more prominent role in markets with positive expectation feedback than in markets with negative feedback. In both types of...

Rational Expectations (RE) models have two crucial dimensions: agents correctly forecast future prices given all available information, and given expectations, agents solve optimization problems and these solutions in turn determine actual price realizations. Experimental testing of such models...

We study the emergence of bubbles in a laboratory experiment with large groups of individuals. The realized price is the aggregation of the forecasts of a group of individuals, with positive expectations feedback through speculative demand. When prices deviate from fundamental value, a random...

This paper provides new evidence on the formation and anchoring process of expectations. We conduct a game experiment and measure the convergence of inflation expectations as well as the impact of credible targets in central banking. In addition, we evaluate the idiosyncratic variables of our...

This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects (1) submit a price forecast only, (2) choose quantity to buy/sell and (3) perform both tasks. We find deviation of the market price from the...