Price bubbles sans dividend anchors: Evidence from laboratory stock markets

Shinichi Hirota*, Shyam Sunder

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapter

4 Citations (Scopus)


We experimentally explore how investor decision horizons influence the formation of stock prices. We find that in long-horizon sessions, where investors collect dividends till maturity, prices converge to the fundamental levels derived from dividends through backward induction. In short-horizon sessions, where investors exit the market by receiving the price (not dividends), prices levels and paths become indeterminate and lose dividend anchors; investors tend to form their expectations of future prices by forward, not backward, induction. These laboratory results suggest that investors' short horizons and the consequent difficulty of backward induction are important contributors to the emergence of price bubbles.

Original languageEnglish
Title of host publicationBehavioral Interactions, Markets, and Economic Dynamics
Subtitle of host publicationTopics in Behavioral Economics
PublisherSpringer Japan
Number of pages39
ISBN (Electronic)9784431555018
ISBN (Print)9784431555001
Publication statusPublished - 2015 Sept 12


  • Backward induction
  • Market experiments
  • Short-term investors
  • Stock price bubbles

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)
  • Psychology(all)


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