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Experimental Finance
Introduction
“Finance does not need experiments, because we have lots of data” (Editor, Econometrica)
“Experiments are an underused method in finance and have natural advantages for behavioral finance. Experiments can provide a useful means to circumvent several common econometric issues such as omitted variables, unobserved variables, and self-selection. Experiments can extend the theoretical models they test by relaxing various assumptions or examining settings that are too complex to be addressed analytically. Whether or not theoretical predictions are clearly known in advance, experiments are most informative when they rely on controlled manipulation, which is the source of their inferential power.” Bloomfield and Anderson (2011)
This course aims to convince the course participants that experimental finance is a reliable complement to theorizing and secondary data analysis. Even though experiments do still not belong to the standard tool box of researchers in the field of finance, we see that more and more articles using experiments are published in finance journals.1 In particular, this method might help to bring finance research closer to society as recent articles conclude that traditional finance research has barely impact.2 In the recent years, the community of researchers using experimental finances has increased tremendously and most users are organized in the Society for Experimental Finance (www.experimentalfinance.org).
1 E.g. Charness, G., & Neugebauer, T. A test of the Modigliani-Miller invariance theorem and arbitrage in experimental asset markets or Kirchler, M., Lindner, F., & Weitzel, U. Rankings and risk-taking in the finance industry, both forthcoming in Journal of Finance.
2 Brooks, Chris and Fenton, Evelyn and Schopohl, Lisa and Walker, James T, Why Does Research in Finance Have So Little Impact? (December 18, 2016). Available at SSRN: https://ssrn.com/abstract=2936544 or http://dx.doi.org/10.2139/ssrn.2936544
We will consider underlying principles of experimental finance and discuss experimental designs and its results. After the course you are able to
- identify and apply basic concepts of experimental finance
- differentiate between experimental designs
- apply selected data analysis tools
- set up your own experiment
The two-day course consists of interactive lectures and, of course, participation in experiments. The course material consists of slides including references to the relevant articles. Those slides will be made available shortly before the course.
Topics
1. Why Experimental Finance? Experiments as a complement to theorizing and archival data analysis
2. Method: Experiments Terminology, Experimental Design, Analysis
3. Individual Decision Making Experiments Selected topics: theory testing, asset characteristics, framing, social relations, personal traits, risk elicitation,…
4. Asset Market Experiments Selected topics: theory testing, market design effects, influence of subject characteristics on pricing, price bubbles,…
Instructor: Dr. Sascha Füllbrunn (http://www.ru.nl/english/people/fullbrunn-s/)
Sascha is an Associate Professor of Finance at Radboud University. He studied Economics and Management at the University of Hannover, completing his Diploma in Economics and Management (Dipl. Oec.) in 2004. He obtained his Dr. rer. pol. from the University of Magdeburg with honors in 2009. After successfully applying for an AFR research grant from the National research fund in Luxembourg (FNR), he was a research fellow at the Luxembourg School of Finance until 2012. Before his appointment in Nijmegen, he was a research fellow at the Strategic Interaction Group at the Max Planck Institute of Economics in Jena, Germany. Sascha is interested in asset market design and financial decision making using experimental methods (experimental economics/experimental finance).
Key publications consider the effect of uncertainty (Journal of Economic Behaviour & Organization), speculation (Experimental Economics), and gender differences (American Economic Review) in experimental asset markets. Further articles consider experimental studies on IPOs, Auctions, Trust, Limited Liability and Decision Making for Others.
Experimental Finance
Introduction
“Finance does not need experiments, because we have lots of data” (Editor, Econometrica)
“Experiments are an underused method in finance and have natural advantages for behavioral finance. Experiments can provide a useful means to circumvent several common econometric issues such as omitted variables, unobserved variables, and self-selection. Experiments can extend the theoretical models they test by relaxing various assumptions or examining settings that are too complex to be addressed analytically. Whether or not theoretical predictions are clearly known in advance, experiments are most informative when they rely on controlled manipulation, which is the source of their inferential power.” Bloomfield and Anderson (2011)
This course aims to convince the course participants that experimental finance is a reliable complement to theorizing and secondary data analysis. Even though experiments do still not belong to the standard tool box of researchers in the field of finance, we see that more and more articles using experiments are published in finance journals.1 In particular, this method might help to bring finance research closer to society as recent articles conclude that traditional finance research has barely impact.2 In the recent years, the community of researchers using experimental finances has increased tremendously and most users are organized in the Society for Experimental Finance (www.experimentalfinance.org).
1 E.g. Charness, G., & Neugebauer, T. A test of the Modigliani-Miller invariance theorem and arbitrage in experimental asset markets or Kirchler, M., Lindner, F., & Weitzel, U. Rankings and risk-taking in the finance industry, both forthcoming in Journal of Finance.
2 Brooks, Chris and Fenton, Evelyn and Schopohl, Lisa and Walker, James T, Why Does Research in Finance Have So Little Impact? (December 18, 2016). Available at SSRN: https://ssrn.com/abstract=2936544 or http://dx.doi.org/10.2139/ssrn.2936544
We will consider underlying principles of experimental finance and discuss experimental designs and its results. After the course you are able to
- identify and apply basic concepts of experimental finance
- differentiate between experimental designs
- apply selected data analysis tools
- set up your own experiment
The two-day course consists of interactive lectures and, of course, participation in experiments. The course material consists of slides including references to the relevant articles. Those slides will be made available shortly before the course.
Topics
1. Why Experimental Finance? Experiments as a complement to theorizing and archival data analysis
2. Method: Experiments Terminology, Experimental Design, Analysis
3. Individual Decision Making Experiments Selected topics: theory testing, asset characteristics, framing, social relations, personal traits, risk elicitation,…
4. Asset Market Experiments Selected topics: theory testing, market design effects, influence of subject characteristics on pricing, price bubbles,…
Instructor: Dr. Sascha Füllbrunn (http://www.ru.nl/english/people/fullbrunn-s/)
Sascha is an Associate Professor of Finance at Radboud University. He studied Economics and Management at the University of Hannover, completing his Diploma in Economics and Management (Dipl. Oec.) in 2004. He obtained his Dr. rer. pol. from the University of Magdeburg with honors in 2009. After successfully applying for an AFR research grant from the National research fund in Luxembourg (FNR), he was a research fellow at the Luxembourg School of Finance until 2012. Before his appointment in Nijmegen, he was a research fellow at the Strategic Interaction Group at the Max Planck Institute of Economics in Jena, Germany. Sascha is interested in asset market design and financial decision making using experimental methods (experimental economics/experimental finance).
Key publications consider the effect of uncertainty (Journal of Economic Behaviour & Organization), speculation (Experimental Economics), and gender differences (American Economic Review) in experimental asset markets. Further articles consider experimental studies on IPOs, Auctions, Trust, Limited Liability and Decision Making for Others.