The cross-section of average annual returns on German common stock in the period of 1881-1913 exhibits several of the patterns that have been observed in more recent U.S. data. Market beta is hardly important, and its explanatory power is swamped by size and the ratio of book value to market...

We report on six large-scale financial markets experiments that were designed to test two of the most basic propositions of modern asset pricing theory, namely, that the interaction between risk averse agents in a competitive market leads to equilibration, and that, in equilibrium, risk premia...

We report on experiments of simple, repeated asset markets in two risky securities and one risk-free security, set up to test the Capital Asset Pricing Model (CAPM), which embeds the two most essential principles of modern asset pricing theory, namely, (i) financial markets equilibrate, (ii) in...

Execution of complex cognitive tasks is often analyzed as an exercise of information acquisition and belief updating. We challenge this view in the context of a non-incremental task, namely, the knapsack problem. First, we provide a theoretical argument why Bayesian updating makes little sense...

Consider the Rational Expectations price history of an Arrow-Debreu security that matures in the money: p(1), p(2), ..., p(T). Past information can be used to predict the return (p(t+1)-p(t))/p(t). Now consider a simple alternative performance measure: (p(t+1)-p(t))/p(t+1). It differs from the...

In traditional Reinforcement Learning (RL), agents learn to optimize actions in a dynamic context based on recursive estimation of expected values. We show that this form of machine learning fails when rewards (returns) are affected by tail risk, i.e., leptokurtosis. Here, we adapt a recent...

This paper reports on experimental tests of an instantiation of the Lucas asset pricing model with heterogeneous agents and time-varying private income streams. Central features of the model (infinite horizon, perishability of consumption, stationarity) present difficult challenges and require a...