Individual Expectations, Limited Rationality and Aggregate Outcomes

Recent studies suggest that the type of strategic environment or expectation feedback may have a large impact on whether the market learns the rational fundamental price. We present an experiment where the fundamental price experiences large unexpected shocks. Markets with negative expectation feedback (strategic substitutes) quickly converge to the new fundamental, while markets with positive expectation feedback (strategic complements) do not converge, but show under-reaction in the short run and over-reaction in the long run. A simple evolutionary selection model of individual learning explains these differences in aggregate outcomes.

Price Stability and Volatility in Markets with Positive and Negative Expectations Feedback: An Experimental Investigation

The evolution of many economic variables is affected by expectations that economic agents have with respect to the future development of these variables. Here we show, by means of laboratory experiments, that market behavior depends to a large extent on how the realized market price responds to an increase in average price expectations. If it responds by decreasing, as in commodity markets, prices converge quickly to their equilibrium value, confirming the rational expectations hypothesis. If the realized price increases after an increase of average expectations, as is typical for financial markets, large fluctuations in realized prices are likely.

Forming price expectations in positive and negative feedback systems

We analyse the results of an experiment on expectation formation carried out last year (i.e., 2003) in the CREED laboratory in Amsterdam. The experiment involved 78 participants, who were asked to predict prices in artificial single-good economies, and were paid according to their accuracy in doing so. Thirteen markets, with six subjects each, were created, in two different treatments. The first treatment concerns a Cobweb-like commodity market with supply-driven expectations feedback. The second treatment concerns a speculative asset market with demanddriven expectations feedback. In the first treatment price fluctuations are relatively stable, quickly converging to the Rational Expectations fundamental value. In the second treatment prices do not converge quickly, but tend to display a slow oscillation around the fundamental price. An important factor in generating these differences is shown to be the strong coordination of price predictions among participants. This suggests a large degree of homogeneity in the expectation rules applied by the participants, which was confirmed by explicitly fitting the individual predictions to a linear adaptive autoregressive specification.

Coordination of Expectations in Asset Pricing Experiments (Version March 2004)

We investigate expectation formation in a controlled experimental environment. Subjects are asked to predict the price in a standard asset pricing model. They do not have knowledge of the underlying market equilibrium equations, but they know all past realized prices and their own predictions. Aggregate demand of the risky asset depends upon the forecasts of the participants. The realized price is then obtained from market equilibrium with feedback from individual expectations. Each market is populated by six subjects and a small fraction of fundamentalist traders. Realized prices differ significantly from fundamental values. In some groups the asset price converges slowly to the fundamental price, in other groups there are regular oscillations around the fundamental price. In all groups participants coordinate on a common prediction strategy. The individual prediction strategies can be estimated and correspond, for a large majority of participants, to simple linear autoregressive forecasting rules.

Coordination of Expectations in Asset Pricing Experiments (Revised June 2003)

We investigate expectation formation in a controlled experimental environment. Subjects are asked to predict the price in a standard asset pricing model. They do not have knowledge of the underlying market equilibrium equations, but they know all past realized prices and their own predictions. Aggregate demand of the risky asset depends upon the forecasts of the participants. The realized price is then obtained from market equilibrium with feedback from individual expectations. Each market is populated by six subjects and a small fraction of fundamentalist traders. Realized prices differ significantly from fundamental values. In some groups the asset price converges slowly to the fundamental price, in other groups there are regular oscillations around the fundamental price. In all groups participants coordinate on a common prediction strategy. The individual prediction strategies can be estimated and correspond, for a large majority of participants, to simple linear autoregressive forecasting rules.

Circulating cell death products predict clinical outcome of colorectal cancer patients.

BackgroundTumor cell death generates products that can be measured in the circulation of cancer patients. CK18-Asp396 (M30 antigen) is a caspase-degraded product of cytokeratin 18 (CK18), produced by apoptotic epithelial cells, and is elevated in breast and lung cancer patients.MethodsWe determined the CK18-Asp396 and total CK18 levels in plasma of 49 colorectal cancer patients, before and after surgical resection of the tumor, by ELISA. Correlations with patient and tumor characteristics were determined by Kruskal-Wallis H and Mann-Whitney U tests. Disease-free survival was determined using Kaplan-Meier methodology with Log Rank tests, and univariate and multivariate Cox proportional hazard analysis.ResultsPlasma CK18-Asp396 and total CK18 levels in colorectal cancer patients were related to disease stage and tumor diameter, and were predictive of disease-free survival, independent of disease-stage, with hazard ratios (HR) of patients with high levels (> median) compared to those with low levels (< or = median) of 3.58 (95% CI: 1.17-11.02) and 3.58 (95% CI: 0.97-7.71), respectively. The CK18-Asp396/CK18 ratio, which decreased with tumor progression, was also predictive of disease-free survival, with a low ratio (< or = median) associated with worse disease-free survival: HR 2.78 (95% CI: 1.06-7.19). Remarkably, the plasma CK18-Asp396 and total CK18 levels after surgical removal of the tumor were also predictive of disease-free survival, with patients with high levels having a HR of 3.78 (95% CI: 0.77-18.50) and 4.12 (95% CI: 0.84-20.34), respectively, indicating that these parameters can be used also to monitor patients after surgery.ConclusionCK18-Asp396 and total CK18 levels in the circulation of colorectal cancer patients are predictive of tumor progression and prognosis and might be helpful for treatment selection and monitoring of these patients