Bubbles, crashes and information contagion in large-group asset market experiments

We experimentally investigate how price expectations are formed in a large asset market where subjects' only task is to forecast the future price of a risky asset. The realized prices depend on these expectations. We compare small (6 participants) and large markets (about 100 participants). In large markets the influence of an individual forecast on the realized price is much smaller. When realized prices are far from the equilibrium, a random selection of participants receives “news”.
We observe both stable markets and large bubbles for both small and large markets. The data analysis shows no differences between markets considering group size. Coordination on bubbles is thus robust in large groups. The news has a mitigating effect on individual forecasts and in some markets the news successfully drives prices back towards the fundamental, but we also observe large bubbles in which the news apparently has no effect. The behavioural heuristics switching model with subjects
switching to trend-following strategies can capture experimental data well.