Irrational people, irrational markets? Experimental studies on the relevance of peripheral cues
Project Description
This cumulative dissertation project uses insights from cognitive and social psychology to explain financial market behavior. Thereby, it will contribute to a growing literature, investigating how behavioral responses at the individual level affect market outcomes. In three scientific essays, the author analyzes how peripheral cues, such as the visualization of relevant information, the concrete nature of assets (physical cash, virtual money in a bank account, etc.) or signal characteristics (timing, accuracy, etc.), affect the efficiency and stability of financial markets. For this purpose, the author uses well-established experimental designs, namely experimental asset markets and bank run games, which allow for an analysis of aggregate outcomes (market efficiency, stability, etc.) while keeping track of individual characteristics (age, risk aversion, etc.). Preliminary results from two different experiments, conducted by the author, show that peripheral cues not only affect participants` choices at the individual level but also affect market-level characteristics. If confirmed by additional analyses, these results may further challenge the prominent claim that market forces eliminate individual behavioral biases.
