Post by agito on Dec 13, 2008 17:08:12 GMT -6
the atlantic has an article about experimental economies- and it asserts that bubble phenomena may be unavoidable- and therefore unregulatable.
I don't agree with the assertion by the author- but the article is an important read none-the-less.
after outlaying the premise of the experiments- the author gets into the results.
my problem with the scenario as described is that it's timeline trading. If we all were trading to see how much money we could make before the end of 2008- then it only makes sense that everyone would pull out of the market in the last week of december. but that's not how the market operates with so many market participants coming in and going on a continuous basis. they might get bubbles in their trading 90% of the time- but i doubt it explains 90% of the bubbles that have happened in our economy.
I don't agree with the assertion by the author- but the article is an important read none-the-less.
after outlaying the premise of the experiments- the author gets into the results.
Here, finally, is a security with security—no doubt about its true value, no hidden risks, no crazy ups and downs, no bubbles and panics. The trading price should stick close to the expected value. At least that’s what economists would have thought before Vernon Smith, who won a 2002 Nobel Prize for developing experimental economics, first ran the test in the mid-1980s. But that’s not what happens. Again and again, in experiment after experiment, the trading price runs up way above fundamental value. Then, as the 15th round nears, it crashes. The problem doesn’t seem to be that participants are bored and fooling around. The difference between a good trading performance and a bad one is about $80 for a three-hour session, enough to motivate cash-strapped students to do their best. Besides, Noussair emphasizes, “you don’t just get random noise. You get bubbles and crashes.” Ninety percent of the time.
my problem with the scenario as described is that it's timeline trading. If we all were trading to see how much money we could make before the end of 2008- then it only makes sense that everyone would pull out of the market in the last week of december. but that's not how the market operates with so many market participants coming in and going on a continuous basis. they might get bubbles in their trading 90% of the time- but i doubt it explains 90% of the bubbles that have happened in our economy.