The experimental study of asset pricing theory

Abstract

This monograph sets the stage for experiments by first examining a sample data set that looks very much like the typical historical data one gathers from the field, only it was actually generated in the laboratory so that we know what really went on. The example demonstrates how misleading the traditional analysis can be. It then moves on to discuss risk aversion, since asset pricing theory builds on risk aversion. The issue is - is there enough risk aversion in the laboratory given typical levels of compensation? Asset pricing theory also builds on competitive markets and competitive equilibrium, but these are actually purely abstract notions, without any suggestion of how to generate them ..