Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • June 2008
  • Article
  • American Economic Review

'Thar' She Blows: Can Bubbles Be Rekindled with Experienced Subjects?

By: Reshmaan Hussam, David Porter and Vernon Smith
  • Format:Print
ShareBar

Abstract

We report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and “error” elimination among participants in a laboratory asset market and its effect on price bubbles. Our answer to the title question is: “yes.” We impose a large increase in liquidity and dividend uncertainty to shock the environment of experienced subjects who have converged to equilibrium, and this treatment rekindles a bubble. However, in replications of that same challenging environment across three experience levels, we discover that the environment yields a rare residual tendency to bubble even in the third experience session. Therefore, a caveat must be placed on the effect of twice-experienced subjects in asset markets: in order for price bubbles to be extinguished, the environment in which the participants engage in exchange must be stationary and bounded by a range of parameters. Experience, including possible “error” elimination, is not robust to major new environment changes in determining the characteristics of a price bubble.

Keywords

Experimental Economics; Asset Markets; Bubbles; Price Bubble; Financial Markets

Citation

Hussam, Reshmaan, David Porter, and Vernon Smith. "'Thar' She Blows: Can Bubbles Be Rekindled with Experienced Subjects?" American Economic Review 98, no. 3 (June 2008): 924–937.
  • Find it at Harvard
  • Register to Read

About The Author

Reshmaan N. Hussam

Business, Government and the International Economy
→More Publications

More from the Authors

    • April 2022
    • Faculty Research

    Indigenous Wisdom and the Climate Crisis

    By: Reshmaan Hussam
    • March 2022
    • American Economic Review

    Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in the Field

    By: Reshmaan Hussam, Natalia Rigol and Benjamin N. Roth
    • January 2022
    • Faculty Research

    Indigenous Wisdom and the Climate Crisis

    By: Reshmaan N. Hussam, Nadia Ahmad and Grace Liu
More from the Authors
  • Indigenous Wisdom and the Climate Crisis By: Reshmaan Hussam
  • Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in the Field By: Reshmaan Hussam, Natalia Rigol and Benjamin N. Roth
  • Indigenous Wisdom and the Climate Crisis By: Reshmaan N. Hussam, Nadia Ahmad and Grace Liu
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College