Effects of different ways of incentivizing price forecasts on market dynamics and individual decisions in asset market experiments

Nobuyuki Hanaki, Eizo Akiyama, Ryuichiro Ishikawa

Research output: Contribution to journalArticle

12 Citations (Scopus)

Abstract

In this study, we investigate (a) whether eliciting future price forecasts influences market outcomes and (b) whether differences in the way in which subjects are incentivized to submit “accurate” price forecasts influence market outcomes as well as the forecasts in an experimental asset market. We consider four treatments: one without forecast elicitation and three with forecast elicitation. In two of the treatments with forecast elicitation, subjects are paid based on their performance in both forecasting and trading, while in the other treatment with forecast elicitations, they are paid based on only one of those factors, which is chosen randomly at the end of the experiment. We found no significant effect of forecast elicitation on market outcomes in the latter case. Thus, to avoid influencing the behavior of subjects and market outcomes by eliciting price forecasts, paying subjects based on either forecasting or trading performance chosen randomly at the end of the experiment is better than paying them based on both. In addition, we consider forecast-only experiments: one in which subjects are rewarded based on the number of accurate forecasts and the other in which they are rewarded based on a quadratic scoring rule. We found no significant difference in terms of forecasting performance between the two.

Original languageEnglish
Pages (from-to)51-69
Number of pages19
JournalJournal of Economic Dynamics and Control
Volume88
DOIs
Publication statusPublished - 2018 Mar

Keywords

  • Experimental asset markets
  • Price forecast elicitation

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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