In a given period, a diversified fund, by virtue of being a weighted average, will perform somewhere in the middle range of its components' respective performances. This means that adaptive investors who look to the past to adjust expectations about future returns will shun diversified funds....

An important issue in the study of asset market bubbles is the extent to which traders are influenced by their perceived performance relative to other traders. Extant research on laboratory asset market bubbles has generally kept performance information private, effectively excluding such...