טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
Ph.D Thesis
Ph.D StudentKauffmann Amitay
SubjectBuyer-Seller Gaps in Bubble Metrics of Asset Markets
DepartmentDepartment of Industrial Engineering and Management
Supervisors Professor Eldad Yechiam
Dr. Gal Zahavi
Full Thesis textFull thesis text - English Version


Abstract

Economic bubbles are an empirical puzzle because they do not readily fit the notion of an efficient market. We argue that economic bubbles are a result of a conflict in the allocation of cognitive effort by sellers and buyers, and offer an anternative hypthesis for the formation of experimental asset market bubbles - namely, the “cognitive effort hypothesis”. This study included 103 men and 62 women, which participated in twenty-one experimental asset markets. Participants were randomly assigned into one of two conditions - in one condition participants could buy and sell a tradeable asset, and in the other condition they could either buy or sell, but not do both. We estimated participants’ cognitive effort by the volume of buying offers (also known as “bids”) and the volume of selling offers (also known as “asks”). First, the results confirm the manifestation of asset market bubbles, indicating that the mean market price across all 252 rounds was significantly above the fundamental value of the tradeable asset, which affirms the manifestation of asset market bubbles. Second, the results indicated that when making concurrent buying and selling decisions the mean number of asks was 71% higher than the number of bids. Third, These findings were similarly attained from a re-analysis of data from Lei et al. (2001). Importantly, when comparing the cognitive effort on a market level, across all trading rounds, we found that bubbles only emerged in markets where the number of asks was larger than that of bids. These findings indicate that bubbles are associated with increased cognitive effort when acting as a seller and diminished effort when acting as a buyer.