Two Heads Are Less Bubbly than One: Team Decision-Making in an Experimental Asset Market

We study the effect of team decision-making on bubbles and crashes in experimental asset markets of the kind introduced by Smith, Suchanek and Williams (1988). We find that populating such markets with teams of size two instead of individuals significantly reduces the severity of mispricing. In particular we observe that under our teams treatment, deviations in prices away from intrinsic value are significantly smaller in magnitude, shorter in duration and associated with lower volume and price volatility. We also find an unexpected gender effect in team composition, manifesting itself in more extreme – though not consistently more profitable – behaviour by all-male teams. Since these effects are not observed among male participants generally, we conjecture that they may be due to factors specific to the psychology of decision-making in male-dominated environments.asset market experiments, price bubbles, group decision-making, gender composition of teams

Two heads are less bubbly than one: Team decision-making in an experimental asset market

In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decision-making unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the ‘narrow' baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind.group decision-making; price bubbles; asset market experiments

Inducing Low-Carbon Investment in the Electric Power Industry through a Price Floor for Emissions Trading

Uncertainty about long-term climate policy is a major driving force in the evolution of the carbon market price. Since this price enters the investment decision process of regulated firms, this uncertainty increases the cost of capital for investors and might deter invest-ments into new technologies at the company level. We apply a real options-based approach to assess the impact of climate change policy in the form of a constant or growing price floor on investment decisions of a single firm in a competitive environment. This firm has the opportunity to switch from a high-carbon “dirty” technology to a low-carbon “clean” technology. Using Monte Carlo simulation and dynamic programming techniques for real market data, we determine the optimal CO2 price floor level and growth rate in order to induce investments into the low-carbon technology. We show these findings to be robust to a large variety of input parameter settings.Carbon price, price floor, technological change, investment decision, real option approach

To See Is To Believe: Common Expectations In Experimental Asset Markets

We experimentally manipulate agents' information regarding the rationality of others in a setting in which previous studies have found irrationality to be present, namely the asset market experiments introduced by Smith, Suchanek, and Williams (Econometrica, 1988). Recent studies suggest that mispricing in such markets may be an artefact of confusion, which can be reduced by training subjects to understand the diminishing fundamental value. We reconsider this view, and argue that when it is made public knowledge that training has occurred, this may also reduce uncertainty over the behavior of others and facilitate the formation of common expectations. Our design disentangles the direct effect of training from the indirect e_ect of its public knowledge, and our results indicate a distinct effect of public knowledge over and above that of training alon

Nobel and Novice: Author Prominence Affects Peer Review

Peer-review is a well-established cornerstone of the scientific process, yet it is not immune to status bias. Merton identified the problem as one in which prominent researchers get disproportionately great credit for their contribution while relatively unknown researchers get disproportionately little credit.1 We measure the extent of this effect in the peer-review process through a pre-registered field experiment. We invite more than 3,300 researchers to review a paper jointly written by a prominent author – a Nobel laureate – and by a relatively unknown author – an early-career research associate –, varying whether reviewers see the prominent author’s name, an anonymized version of the paper, or the less well-known author’s name. We find strong evidence for the status bias: while only 23 percent recommend “reject” when the prominent researcher is the only author shown, 48 percent do so when the paper is anonymized, and 65 percent do so when the little-known author is the only author shown. Our findings complement and extend earlier results on double-anonymized vs. singleanonymized review2,3,4,5,6,7 and strongly suggest that double-anonymization is a minimum requirement for an unbiased review process

Financial or environmental-impact information promote ESG investments: Evidence from a large incentivized online-experiment

Effective stimulation of investments in Environmental, Social, and Governance (ESG) requires reliable knowledge of motives that drive investors’ decisions. We investigate how information on financial return and environmental impact as well as the combination of both affect the decision to invest sustainably. Moreover, we test whether offering a general or granular choice on sustainability preferences affects investment decisions. An incentivized online experiment with experienced retail investors and a representative sample of the Austrian population (N = 2254) shows that information on financial impact as well as on environmental impact stimulates sustainable investments. However, the combination of both types of information yields no additional positive effect. Information has no strong effect on investor satisfaction. Also, the difference in choice options on sustainability preferences has no large impact on investment decisions or satisfaction. An explorative analysis suggests that women and investors holding high biospheric values as well as investors with high financial literacy, and trust in ESG products are more likely to invest sustainably. Additional results on the revision and stability of investment decisions are discussed

Financial Return and Environmental Impact Information Promotes ESG Investments: Evidence from a Large, Incentivized Online Experiment

Sustainable investments are characterized by considerations about financial returns as well as environmental impact. We investigate how information on both aspects alone and in combination impacts the decision to invest sustainably. Moreover, we test whether letting investors express their sustainability preferences in a more detailed way affects their investment decisions. We run an incentivized online experiment with experienced retail investors and a representative sample of the Austrian population (N = 2,254 in total). We find that information on financial returns and information on environmental impact both stimulate sustainable investments. However, presenting the two types of information in combination yields no greater effect than presenting one of them alone. Furthermore, we find no evidence that investment decisions are affected by whether sustainability preferences are elicited generally or in a more detailed format. Results also show that sustainable investments are positively correlated with investors’ biospheric values and their financial literacy

Two heads are less bubbly than one: Team decision-making in an experimental asset market

In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decision-making unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the ‘narrow’ baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind

Non-Standard Errors

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: Non-standard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for better reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants