Volume 3, Number 1, 2002 Abstracts
© Copyright Erlbaum 2000 - 2002

Introduction to the Institute's June 2001 Conference:
A Multidisciplinary Approach to Understanding Bubbles

In June 2001, The Institute of Psychology and Markets presented a conference entitled "The Disintegration of History's Largest Bubble." This conference featured a number of scholars from diverse disciplines within economics, finance, psychology and public policy. The presentations sought to shed light on the behavior and decision making that led to the internet/ high-tech bubble of the late 1990's and the subsequent collapse. A related conference that was open to the general public was held in October 2001.

Transcripts

Bubbles and the Role of Analysts' Forecasts
David Dreman

Asset Markets
Gunduz Caginalp, David Porter and Vernon Smith

Market Efficiency of Bubbles
Colin Camerer

The Changing Nature of the Initial Public Offering Market
Timothy Loughran

Imagery and Financial Judgment
Donald G. MacGregor

Blowing Bubbles
Kenneth L. Fisher
Meir Statman

The forecasts of individual investors, surveyed by Gallup/PaineWebber, imply that they believed that the market was in a bubble in the late 1990s and expected the bubble to continue to inflate; many investors thought that the stock market was overvalued in the late 1990s but many also thought that it was a good time to invest. The forecasts of institutional investors, surveyed by Business Week, imply that they too believed that the market was in a bubble in the late 1990s, but they expected the bubble to burst. Institutional investors were bearish in the late 1990s, but turned bullish after the stock market decline of 2000, while individual investors turned bearish

Can Markets Learn to Avoid Bubbles?
Ross M. Miller

One of the most striking results in experimental economics is the ease with which market bubbles form in a laboratory setting and the difficulty of preventing them. This article reexamines bubble experiments in light of the results of an earlier series of market experiments that show how learning occurs in markets characterized by an asymmetry of information between buyers and sellers, such as found in Akerlof's lemons model and Spence's signaling model. Markets with asymmetric information are incomplete because they lack markets for specific levels of product quality. Such markets either lump all qualities together (lemons) or using external indications of quality to separate them (signaling). Similarly, the markets used in bubble experiments are incomplete in that they are lacking a complete set of forward or futures markets, depriving traders of the information supplied by the prices in those markets. Preliminary experimental results suggest that the addition of a single forward market can sometimes mitigate bubble formation and this article suggests more extensive research in this direction is warranted. Market bubbles outside of the laboratory usually are found in markets in which forward and futures markets are either legally restricted or otherwise limited.

Experimentation in markets with asymmetric information also indicates that the ability of subjects to learn how to send and receive signals can be enhanced by changing the way that market information is presented to them. We explore how this result might be used to help asset markets learn to avoid bubbles.