Relative Performance Information in Asset Markets: An Experimental ApproachCoauthor(s): Ernan Haruvy.
This study offers empirical support for a recently proposed theoretical model of asset market bubbles in which relative wealth concerns cause rational investors to choose to participate in a finite horizon bubble. I find that laboratory asset market bubbles are larger when participants are given upward social information, i.e., are informed of the highest payoff in their market, as compared to downward social information. This finding can be explained by the influence of social comparisons in the formation of prospect theory reference frames; upward comparisons may cause participants to construe their outcomes as losses and become more risk-seeking.
Source: Journal of Economic Psychology
Schoenberg, Eric, and Ernan Haruvy. "Relative Performance Information in Asset Markets: An Experimental Approach." Journal of Economic Psychology 33 (2012): 1143-1155.