Markets

Theoretical and experimental research on the behaviour of markets

OVERVIEW

We conduct both theoretical and experimental research on the behaviour of markets, interaction between individuals and markets including emotional engagement, off-equilibrium markets behaviour, and exploration of ways to use markets to effectively spread knowledge in society.

Economists explain and predict market behaviour through the lens of "equilibrium." In the analysis of field data, equilibrium necessarily is a maintained hypothesis. For two decades now, we have been studying the power and failures of equilibrium theory through experiments, paying particular attention to interaction between multiple markets, and feedback between markets, individuals and their knowledge and information. We have studied the core asset pricing theories of modern finance, taught in classrooms, used in courtrooms and appealed to in policy formation. We have worked on the design of novel markets and exchange mechanisms that improve allocation of risks, resources, information and the spread of knowledge in society. We focus on situations of classical uncertainty (where outcomes are random draws) as well as computational complexity (where uncertainty is generated because of combinatorial difficulty).

Our experiments demonstrate that equilibration can be a protracted process and may not be guaranteed. We have worked on experiments that have allowed us to start building a theory of off-equilibrium markets behaviour, marrying old theories with novel experimental insights. In our studies, we pay attention to allocation dynamics as much as we do to the evolution of prices.

Finally, we study human coping capabilities when faced with the complexity of markets, especially financial markets. Ideas from social psychology (theory of mind) and philosophy (intentional stance) have helped explain why some people are better at predicting market outcomes or successfully ride bubbles. Insights thus obtained are used to design training schemes to overcome cognitive biases in trading.

INVESTIGATORS

Abhijeet Anand, Ryan Anderson, Peter Bossaerts, Felix Fattinger, Shijie Huang, Carsten Murawski, Kristian Rotaru, Shinsuke Suzuki, Nitin Yadav

Recent Publications