Price Patterns in Experimental Asset Markets with Long Horizon

We investigate the generality of the bubble and crash price pattern observed in previous asset market experiments. The deviation of prices from fundamental values can be explained by either a failure of subjects to backward induct, a learning effect, or some other explanation. We conduct experiments with a longer horizon – 200 periods – to find a possible reason for the timing of the crash. If the reason for the crash is the inability of subjects to backward induct, a long bubble should be observed. If, on the other hand, it is a learning effect, then the crash should occur after approximately 13 periods. Our results show that while prices generally deviate from fundamental values, price patterns are different than in the 15-period markets, featuring multiple bubbles and crashes..  Lahav Consulting, LLC, 6701 Democracy Blvd. Suite 300, Bethesda MD 20817. email: [email protected].