TY - JOUR
T1 - Incentive schemes, framing, and market behaviour
T2 - evidence from an asset-market experiment
AU - Cui, Xuegang
AU - Feltovich, Nick
AU - Zhang, Kun
N1 - Funding Information:
Kun Zhang acknowledges funding from the National Natural Science Foundation of China (No. 71803037 ). Xuegang Cui acknowledges funding from the National Natural Science Foundation of China (No. 71772015 ) and the National Social Science Foundation of China (No. 21AZD121). We thank Lucy Ackert, Zhengyang Bao, Hans Hvide, an editor, and an anonymous referee for helpful comments.
Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2022/5
Y1 - 2022/5
N2 - We investigate how asset prices and trading behaviour are impacted by the structure and framing of incentives, using a lab experiment. Subjects buy and sell a high-risk asset, a low-risk asset, and riskless cash over 10 rounds. We vary, between-subjects, the incentive scheme (relative versus absolute performance), and how the variable component of incentives is framed (bonus versus penalty), while holding constant the convexity of incentives. Both relative-performance (tournament) incentives and penalty framing are associated with significant increases in the price of the high-risk asset, relative to either its fundamental value or to the price of the low-risk asset. Additional analysis shows significant gender differences in trading behaviour and performance, and evidence that the two may be connected.
AB - We investigate how asset prices and trading behaviour are impacted by the structure and framing of incentives, using a lab experiment. Subjects buy and sell a high-risk asset, a low-risk asset, and riskless cash over 10 rounds. We vary, between-subjects, the incentive scheme (relative versus absolute performance), and how the variable component of incentives is framed (bonus versus penalty), while holding constant the convexity of incentives. Both relative-performance (tournament) incentives and penalty framing are associated with significant increases in the price of the high-risk asset, relative to either its fundamental value or to the price of the low-risk asset. Additional analysis shows significant gender differences in trading behaviour and performance, and evidence that the two may be connected.
KW - Asset markets
KW - Behavioural finance
KW - Bubbles
KW - Experiment
KW - Framing
KW - Gender
KW - Incentives
KW - Tournament
UR - http://www.scopus.com/inward/record.url?scp=85126905002&partnerID=8YFLogxK
U2 - 10.1016/j.jebo.2022.03.007
DO - 10.1016/j.jebo.2022.03.007
M3 - Article
AN - SCOPUS:85126905002
SN - 0167-2681
VL - 197
SP - 301
EP - 324
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
ER -