Herding and Contrarian Behavior in Financial Markets-An Internet Experiment ∗

@inproceedings{Drehmann2002HerdingAC,
  title={Herding and Contrarian Behavior in Financial Markets-An Internet Experiment ∗},
  author={Mathias Drehmann and J{\"o}rg Oechssler and Andreas Roider},
  year={2002}
}
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 6000 subjects, including a subsample of 267 consultants from an international consulting firm, participated in the experiment. As predicted by theory, we find that the presence of a flexible market price prevents herding. However, the presence of contrarian behavior, which can (partly) be rationalized via error models, distorts prices… CONTINUE READING
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