Public reputation mechanisms are an effective means to limit opportunistic behavior in markets suffering from moral hazard problems. While previous research was mostly concerned with the influence of exogenous feedback mechanisms, this study considers the endogenous emergence of reputation...

Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004: We report results of an internet experiment designed to test the theory of informational cascades in financial markets (Avery and Zemsky, AER, 1998). More than 6400 subjects, including a subsample of 267 consultants from...

Overconfidence is the most prevalent judgment bias. Several studies find that overconfidence can lead to suboptimal decisions on the part of investors, managers, or politicians. This chapter explains which effects are usually summarized as overconfidence, shows how to measure these effects, and...

Documented results indicate prediction markets effectively aggregate information and form accurate predictions. This has led to a proliferation of markets predicting everything from the results of elections to a company's sales to movie box office receipts. Recent research suggests prediction...

This paper presents the results of an experimental study on how people use their private information to estimate the “fair” futures price, and how the quality of this information affects the traders' behavior and desire to trade. It finds that subjects are able to use their information...

The field experimental approach was utilized to collect expectations-arbitrage portfolios from competent investors in late 2008 where stock prices shrunk by 50%. Positions were closed after 3 months and the 4-factor model was applied to characterize strategies and derive risk-adjusted returns....

Microinsurers strive to simplify products and their pricing, a trend that runs counter to the customization and complex underwriting of insurance in richer markets. While necessary to reduce costs and reach wide scale, this trend opens microinsurance markets to problems of information...

Already in the 1930s psychologists mentioned the tendency of people to see the self as the center of social judgment. This leads to egocentrically biased judgments when assessing others' behavior. Since the first demonstration of this social projection bias in a study by Ross, Greene, and House...

Many psychology experiments show that individually judged probabilities of the same event can vary depending on the partition of the state space (a framing effect called partition-dependence). We show that these biases transfer to competitive prediction markets in which multiple informed traders...

A theory is said to be fully absorbable whenever its own acceptance by all of the individuals belonging to a certain population does not question its predictive validity. This accounts for strategic equilibria and can be related to the logic underlying convergence of behaviour and intentional...