Rational Expectations (RE) models have two crucial dimensions: 1) agents correctly forecast future prices given all available information, and 2) given expectations, agents solve optimization problems and these solutions in turn determine actual price realizations. Experimental testing of such...

"Experimental economics involves the use of controlled, experimental methods both in the laboratory and the field to better comprehend how individuals and groups make economic decisions and to more clearly identify causal relationships. This book takes the reader to the frontier of research in...

We examine how exchange traded funds (ETFs) affect asset pricing, and trade volume in a laboratory asset market. We focus on behavior in secondary markets with or without ETF assets and whether there is zero or negative correlation in asset dividends. In the latter case, the diversification...

We model and experimentally evaluate the trade-off between innovation and imitation commonly faced by firms and individuals. Innovation involves searching for a high payoff opportunity, but paying a cost to do so. Imitation involves avoiding the search cost and copying the most successful payoff...

We propose a model of how social norms change in response to the evolution of privately held preferences. Our aim is to rationalize the tendency for individuals who hold minority preferences to take actions favored by the majority. We do this using a game involving a tension between a desire to...

We show that extrinsic or non-fundamental uncertainty influences markets in a controlled environment. This work provides the first direct evidence of sunspot equilibria. These equilibria require a common understanding of the semantics of the sunspot variable, and they appear to be sensitive to...

Many internet auction sites implement ascending-bid, second-price auctions. Empirically, last minute or quot;latequot; bidding is frequently observed in quot;hard-closequot; but not in quot;soft-closequot; versions of these auctions. In this paper, we introduce an independent private-value...

We report results from an experiment that explores the empirical validity of correlated equilibrium, an important generalization of the Nash equilibrium concept. Specifically, we seek to understand the conditions under which subjects playing the game of Chicken will condition their behavior on...

The paper analyzes dollarization in the sense of asset substitution, where a foreign currency competes with local assets, especially domestic capital, as a store of value, the impact of dollarization on capital accumulation and output, and why economies remain dollarized long after a successful...

This paper presents experimental results from an analysis of two similar games, the repeated ultimatum game and the repeated best-shot game. The experiment examines whether the amount and content of information given to players affects the evolution of play in the two games. In one experimental...