Stefan Palan

University of Graz | KFU Graz · Department of Banking and Finance

Backers and opponents argue over the pros and cons of legislation forbidding trading by informed insiders. Yet a lack of reliable empirical data about the effects of such legislation inhibits a conclusive scientific evaluation. We overcome this problem by resorting to laboratory markets and find that insider legislation has significant negative eff...

The number of online experiments conducted with subjects recruited via online platforms has grown considerably in the recent past. While one commercial crowdworking platform - Amazon's Mechanical Turk - basically has established and since dominated this field, new alternatives offer services explicitly targeted at researchers. In this article, we p...

Reciprocation of monetary gifts is well-understood in economics. In contrast, there is little research on reciprocal behavior following immaterial gifts like compliments. We narrow this gap and investigate how employees reciprocate after receiving immaterial gifts and material gifts over time. We purchase (1) ice cream from fast food restaurants, a...

In this article we lay out requirements for an experimental market software for financial and economic research. We then discuss existing solutions. Finally, we introduce GIMS, an open source market software which is characterized by extensibility and ease of use, while offering nearly all of the required functionality.

This paper discusses the literature on bubbles and crashes in the most commonly used experimental asset market design, introduced by Smith et al. It documents the main findings based on the results from 41 published papers, 3 book chapters and 20 working papers.

We study intra- and intergroup cooperation in the production and distribution of a jointly created good. Over several periods, members of one group can choose whether or not to contribute to the good’s production. Members of the other group vote to implement a fair or a discriminatory sharing policy for the good’s proceeds. More cooperative behavio...

Capital markets often regulate insider trading, but whether such regulation aligns with traders’ preferences is an open question. This study examined traders’ regulation preferences conditional on their prospects of becoming informed. Of 64 referenda, traders decided 41 (64%) against regulation. Moreover, traders’ prospects of becoming informed sig...

In statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence‐generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs)....

We experimentally study policy variations to examine economic migrants’ willingness to relocate to, and take up work in, a destination country, and, in turn, destination country citizens’ willingness to allow economic migrants to relocate to and pursue formal work in their country. We focus on economic migrants coming from less developed countries...

Post-earnings-announcement drift (PEAD) is one of the most solidly documented asset pricing anomalies. We use the controlled conditions of the experimental lab to investigate whether earnings autocorrelation is the driving cause of this anomaly. We observe PEAD in settings with uncorrelated and correlated earnings surprises, confirming that earning...

Peer review is a well-established cornerstone of the scientific process, yet it is not immune to biases like status bias, which we explore in this paper. Merton described this bias as prominent researchers getting disproportionately great credit for their contribution, while relatively unknown researchers get disproportionately little credit [R. K....

Peer-review is a well-established cornerstone of the scientific process, yet it is not immune to status bias. Merton identified the problem as one in which prominent researchers get disproportionately great credit for their contribution while relatively unknown researchers get disproportionately little credit.1 We measure the extent of this effect...

Modern capital markets are subject to many interventions and regulations, some of which curtail the implementation of specific trading strategies in a market. While we understand much of these regulations’ individual effects, the picture is less clear about their joint effects. This paper considers the interaction of two regulations, namely rules l...

We experimentally study economic migrants’ willingness to relocate to, and take up work in, the destination country, and, in turn, destination country citizens’ willingness to allow economic migrants to relocate to and pursue formal work in their country. In doing so, we focus on economic migrants coming from less developed countries and citizens o...

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard error...

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard error...

Risk is one of the key aspects in financial decision-making and therefore an integral part of the behavioral economics and finance literature. Focusing on the conceptualization of the term "risk", which researchers have addressed from numerous angles, this comment aims to offer a critical perspective on the interactions between risk preferences (a...

We experimentally study economic migrants' willingness to take up work and integrate into society, and, in turn, destination country citizens' willingness to allow economic migrants to pursue formal work and integrate into society and its social security and welfare system. We find clear evidence for a reciprocal relationship between the individual...

When the information of many individuals is pooled, the resulting aggregate often is a good predictor of unknown quantities or facts. This aggregate predictor frequently outperforms the forecasts of experts or even the best individual forecast included in the aggregation process (“wisdom of crowds”). However, an appropriate aggregation mechanism is...

We explore how individual risk perception influences prices and trading behavior in a market setting. Specifically, our study lets experimental participants trade assets characterized by varying shapes of return distributions. While common mean-variance models predict identical prices for most of our assets, we find trading prices to differ signifi...

We use a laboratory experiment to study how forecasting contributes to mispricing. In the Baseline, we assign both the task of forecasting and the task of trading to the same subject. In treatment SamePay, we separate these tasks and assign them to two different subjects, who share the profits from trade. In treatment Accuracy, we pay forecasters a...

When the information of many individuals is pooled, the resulting aggregate often is a good predictor of unknown quantities or facts (“wisdom of crowds”). This aggregate predictor frequently outperforms the forecasts of experts or even the best individual forecast included in the aggregation process. However, an appropriate aggregation mechanism is...

In many situations, economic actors submit claims for money which are unverifiable or hard to verify. Examples include claims for a tax return or an insurance payout. This paper investigates what role anonymity and externalities play for the decision of whether to be (dis)honest when making such claims. First, does honest claiming increase when ano...

Securities regulators around the globe face the challenge of identifying trades based on privileged information. We study human observers’ ability to identify informed traders and investigate which trading patterns are indicative of informed trading using experimental asset markets. We furthermore test how the behavioral response of informed trader...

GIMS is free, open source software for conducting asset market experiments. It builds on the trusted z-Tree 3.6.7 platform (Fischbacher, 2007) and offers extensive facilities for conducting asset market experiments.

What people perceive as risk clearly goes beyond variance. Several papers have shown that, e.g., probability of loss plays a more prominent role in perceived risk than does variance. We are the first to explore how individual risk perception influences prices and trading behavior in a market setting by exposing subjects to a number of differently s...

This paper investigates the determinants of (dis)honesty of reporters filing unverified claims for money. First, does honest reporting increase when each reporter's unverified claim is made public? We present experimental evidence to this effect. The driver behind this is activation of the preference for appearing honest. Second, does honest report...

This paper investigates the determinants of (dis)honesty of reporters filing unverified claims for money. First, does honest reporting increase when each reporter's unverified claim is made public? We present experimental evidence to this effect. The driver behind this is activation of the preference for appearing honest. Second, does honest report...

Reciprocation of monetary gifts is well-understood in economics. In contrast, there is little research on reciprocal behavior following immaterial gifts like compliments. We close this gap and investigate how employees reciprocate after receiving immaterial and material gifts. We purchase (1) ice cream from fast food restaurants, and (2) durum done...

Reciprocation of monetary gifts is well-understood in economics. In contrast, there is little research on reciprocal behavior following immaterial gifts like compliments. We close this gap and investigate how employees reciprocate after receiving immaterial and material gifts. We purchase (1) ice cream from fast food restaurants, and (2) durum done...

This paper deals with the market structure at the opening of the trading day and its influence on subsequent trading. We compare a single continuous double auction and two complement markets with different call auction designs as opening mechanisms in a unified experimental framework. The call auctions differ with respect to their levels of transpa...

Fallback options are relatively common in the business context. If for example a firm fails to acquire a certain target firm—a first-best solution—it may decide to attempt the acquisition of another takeover target—a second best solution. When a decision maker tries to obtain the first-best solution, she may frequently choose different levels of ef...

The EURO Mini-Conference on “Collaborative Decision Systems in Economics and in Complex Societal and Environmental Applications” took place from October 17 through 19, 2013 in Graz, Austria (https://eurominiconferencegraz2013.wordpress.com/). It was organized by the EURO Working Groups of DSS, E-CUBE, MCSP and ORAFM together with the main organizer...

Recent economic and political science research suggests that the way public policy is set, and in particular the participation of those affected by it, impacts upon the outcome of the policy. Accounting standard setting has long offered such a possibility to participate via the due process approach followed by major standard setters. We review the...

We conduct laboratory experiments incorporating different market structures and insiders who compete with imperfectly informed traders. The insiders possess perfect information regarding the fundamental value of the tradable asset, whereas the imperfectly informed participants receive a noisy signal of fundamental value. In addition to the two trad...

We experimentally manipulate agents' information regarding the rationality of others in a setting in which previous studies have found irrationality to be present, namely the asset market experiments introduced by Smith, Suchanek and Williams (1988). Recent studies suggest that mispricing in such markets may be an artefact of confusion, which can b...

We experimentally investigate whether human subjects are willing to give up individual freedom for improved coordination. We conduct a modified iterated public goods game in which subjects in each period first decide whether to join a group with a voluntary contribution mechanism or one with an allocator contribution mechanism. In the coordinator t...

This article is based on the results of 33 published articles and 25 working papers using the experimental asset market design introduced by Smith, Suchanek and Williams (1988). It discusses the design of a baseline market and goes on to present a database of close to 1600 individual bubble measure observations from experiments in the literature, w...

Uncertainty about long-term climate policy is a major driving force in the evolution of the carbon market price. Since this price enters the investment decision process of regulated firms, this uncertainty increases the cost of capital for investors and might deter investments into new technologies at the company level. We apply a real options-base...

Policy makers and economists are discussing a regulatory ceiling for carbon prices, acting as a ‘‘safety valve’’ for the protection of regulated businesses from unexpected price surges.While the pros and cons of such a regulatory feature are widely discussed in the literature, the optimal design of such a cap and the attendant economic and environm...

As theoretical and empirical approaches suffer some shortcomings if it comes to analyzing insiders' behavior, we conducted an adequate experiment. The experimental design incorporates traders with perfect information of the fundamental value of the tradeable asset. These insiders compete with regular uninformed participants on different market stru...

This experimental study focuses on the effect of opening call auctions on market quality. Our examination extends the existing market microstructure literature in two respects. First, in addition of analyzing the market opening, we examine the effect of an opening call auction on the subsequent continuous trading phase. Second, we analyze two diffe...

Uncertainty about long-term climate policy is a major driving force in the evolution of the carbon market price. Since this price enters the investment decision process of regulated firms, this uncertainty increases the cost of capital for investors and might deter investments into new technologies at the company level. We apply a real options-base...

Uncertainty about long-term climate policy is a major driving force in the evolution of the carbon market price. Since this price enters the investment decision process of regulated firms, this uncertainty increases the cost of capital for investors and might deter investments into new technologies at the company level. We apply a real options-base...

In asset markets, extraordinary price run-ups (bubbles) followed by crashes back to levels closer to fundamental values have been shown to adversely affect the real economy, leading to inefficient resource allocation and underinvestment. Conversely, derivative markets contribute to price discovery and lead to informationally more efficient prices i...

This book describes a laboratory experiment designed to test the causes and properties of bubbles in financial markets and explores the question whether it is possible to design markets which avoid such bubbles and crashes. In the experiment, subjects were given the opportunity to trade in a stock market modeled after the seminal work of Smith et a...

The discussion of the results will start with summary statistics in Sect. 4.1.1. To put these results into perspective, the following section lists a number of definitions for bubble measures found in the literature, as well as some that were created specifically for this study. It then reports more than 600 measure results from 22 studies from the...

This section explains the origin of the bubble measures reported in Tables 7 through 11 in sect. 4.1.1.

Due to the number of different experimental market designs and treatments, different articles in the literature sometimes use the same terms to refer to different components of an experiment. As an example, the term of an “experiment” can refer to one run of an experimental market, to the set of runs conducted with the same subjects or treatment de...

Since the beginning of human history, trade has been an essential part of the lives of the human race and has played an important role in the development of civilization. Very early, centralized places of exchange were established to facilitate trade, promote competition, and reap efficiency gains. All of these marketplaces had in common that trans...

We study the effect of team decision-making on bubbles and crashes in experimental asset markets of the kind introduced by Smith, Suchanek and Williams (1988). We find that populating such markets with teams of size two instead of individuals significantly reduces the severity of mispricing. In particular we observe that under our teams treatment,...

In asset markets, extraordinary price run-ups (bubbles) followed by crashes back to levels closer to fundamental values have been shown to adversely affect the real economy, leading to inefficient resource allocation and underinvestment. Conversely, derivative markets contribute to price discovery and lead to informationally more efficient prices i...

In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experi...

Mit dem Budgetbegleitgesetz 2011 wurde die Systematik der Besteuerung von Kapitalvermögen inklusive Substanzgewinnen in Österreich gänzlich neu geregelt. Dies betrifft auch die steuerliche Behandlung von Investmentfonds, während Versicherungsverträge von der Vermögenszuwachsbesteuerung generell ausgenommen bleiben, da diese bestimmte Risiken...