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Abstract: This paper reports on an experiment designed to examine individual and market outcomes with a mixture of rational and non-rational traders. Using values elicited via auctions, we measure a specific form of irrationality: the tendency to overweight high payoff, low probability events, or probability judgment error. Subjects are classified by their tendency to exhibit errors, as well as their beliefs regarding whether others will make errors. Subjects then participate in a series of double auction markets. The results indicate that both probability judgment error and beliefs about other subjects’ susceptibility to probability judgment error have significant impact on individual and market outcomes. [Copyright &y& Elsevier]

Abstract: This study uses experimental asset markets to investigate the effects of experience and common knowledge on a market''s ability to adjust for optimistic forecast bias. As a baseline, we find that period-end prices reflect unbiased forecasts in markets with private information and inexperienced traders. With low bias forecasts, traders need experience before price adjusts for the bias. With high bias forecasts, traders need experience and public forecast releases before price adjusts for the bias. Overall, our findings provide insight into identifying conditions that are critical for the full revelation of biased, imperfect forecasts and provide direction for future theoretical work. [Copyright &y& Elsevier]

This study conducts experimental asset markets to examine the effects of circuit breaker rules on market behavior when agents are uncertain about the presence of private information. Our results unequivocally indicate that circuit breakers fail to temper unwarranted price movements in periods without private information. Agents appear to mistakenly infer that others possess private information, causing price to move away from fundamental value. Allocative efficiencies in our markets are high across all regimes. Circuit breakers perform no useful function in our experimental asset markets. [ABSTRACT FROM AUTHOR]

Provides a framework from which future research on emotion in financial markets can build. Psychology of economists; Impact of emotional disposition in financial decision making; Effect of mood on risk choices.

ABSTRACT: We conduct eight experimental asset markets to investigate accounting students' abilities to apply knowledge of "permanent earnings" in a market setting. Across the eight markets, asset value is a function of permanent earnings. Initially, we conduct three markets with participants recruited from an introductory financial accounting course, all of whom successfully completed the course. We find that market prices fail to converge to asset value in two of three sessions, even though data suggest that the students have factual knowledge of permanent earnings. We conduct five additional markets using undergraduate and graduate (master's) students recruited from an intermediate financial accounting course. In all five markets, prices converge to asset value. Our results suggest that additional course work beyond introductory financial accounting may be necessary to enrich students' knowledge stores so that they can apply knowledge of permanent earnings in a meaningful economic setting. [ABSTRACT FROM AUTHOR]

Presents an experiment on the prices in an asset market, while investigating the effects on imperfect and private information in the market. Methodology used in the experiment; Findings of the experiment.