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We especially thank our discussants Thomas Langer and Marc Willinger for their helpful comments. The paper improved significantly from comments by an anonymous referee and the editor. Financial support under a NWO-Pionier grant is gratefully acknowledged

Abstract: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.

We examine the force of three types of behavioural dynamics in quantity-setting triopoly experiments: (1) mimicking the successful firm, (2) rules based on following the exemplary firm, and (3) rules based on belief learning. Theoretically, these three types of rules lead to the competitive, the collusive, and the Cournot-Nash outcome, respectively. In the experiment we employ three information treatments, each of which is hypothesized to be conducive to the force of one of the three dynamic rules. To a large extent, the results are consistent with the hypothesized relationships between treatments, behavioural rules, and outcomes.

Proper scoring rules provide convenient and highly efficient tools for incentive‐compatible elicitations of subjective beliefs. As traditionally used, however, they are valid only under expected value maximization. This paper shows how they can be generalized to modern (“non‐expected utility”) theories of risk and ambiguity, yielding mutual benefits: users of scoring rules can benefit from the empirical realism of non‐expected utility, and analysts of ambiguity attitudes can benefit from efficient measurements using proper scoring rules. An experiment demonstrates the feasibility of our generalization.

In the reported experiment different payment schemes are examined on their incentive effects. Payment based on individual, team and relative performance are compared. Subjects conducted computerized tasks that required substantial effort. The results show that individual and team payment induced the same effort levels. In team production free-riding occurred, but it was compensated by many subjects providing more effort than in case of individual pay. Effort was higher, but more variable in tournaments, while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others. Finally, attitudes towards work and other workers differed strongly between conditions.

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We present results on expectation formation in a controlled experimental environment. In each period subjects are asked to predict the next price of a risky asset. The realized market price is derived from an unknown market equilibrium equation with feedback from individual forecasts. In most experiments prices deviate from the benchmark fundamental and bubbles emerge endogenously. These bubbles are inconsistent with rational expectations and seem to be driven by trend chasing behavior or "positive feedback expectations" of the participants. We also analyze individual predictions of participants and find that participants within a group tend to coordinate on a common prediction strategy.