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Full-Text Articles in Economic Theory
On Booms That Never Bust: Ambiguity In Experimental Asset Markets With Bubbles, Brice Corgnet, Roberto Hernán-González, Praveen Kujal
On Booms That Never Bust: Ambiguity In Experimental Asset Markets With Bubbles, Brice Corgnet, Roberto Hernán-González, Praveen Kujal
ESI Working Papers
We study the effect of ambiguity on the formation of bubbles and on the occurrence of crashes in experimental asset markets à la Smith, Suchanek, and Williams (1988). We extend their framework to an environment where the fundamental value of the asset is ambiguous. We show that, when the fundamental value is ambiguous, asset prices tend to be lower than when it is risky although bubbles form in both the ambiguous and the risky environments. Additionally, bubbles do not crash in the ambiguous case whereas they do so in the risky one. These findings regarding depressed prices and the absence …