The Neural Inhibition of Learning Increases Asset Market Bubbles: Experimental Evidence |
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Authors: | Levan Efremidze George Sarraf Karen Miotto Paul J Zak |
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Institution: | 1. Pepperdine University;2. Center for Neuroeconomics and Department of Economics, Claremont Graduate University;3. Center for Neuroeconomics and Department of Economics, Claremont Graduate University;4. University of California, Irvine;5. University of California, Los Angeles;6. Loma Linda University Medical Center |
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Abstract: | The authors tested a leading theory of bubble formation, insufficient learning, in a laboratory asset market using a drug, Naltrexone, which inhibits reinforcement learning. We found that asset price bubbles in Naltrexone sessions were larger compared with placebo sessions, averaging 60% higher in amplitude and 77% larger in the deviation from fundamental value in the final 12-period trading round. There was no difference between conditions in understanding of the trading rules, overconfidence, or confusion. Participants on Naltrexone appeared unable to determine appropriate trading strategies as prices changed. The findings indicate that specific neural mechanism of reinforcement learning is involved in the formation of asset market bubbles. |
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Keywords: | Bubbles Asset pricing Neurofinance Naltrexone Behavioral finance Neuroeconomics |
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