Understanding Unpredictability

Since the emergence of behavioral economics, our understanding of human behavior and decision-making has improved through the widespread use of conducting experiments. In tandem, behavioral and experimental economists seek to merge psychology and emotion into economic thought to better understand the agents that comprise our economic systems. Vernon Smith, a Nobel Prize winning experimental economist, wrote an article on how economic agents in asset market experiments create bubbles (commonly referred to as "booms and busts" or "market crashes"). This study builds on Smith's work and seeks to better understand how participants behave when given information about the expected outcome of the experiment, and thus how external information affects an individual's expectations and behavior in financial markets. Upon the completion of the experiments and analyzing the results, 7 of the 14 experiments with the same parameters ended with the outcome consistent with the researcher's hypotheses. These results conclude that providing participants with different contextual information regarding outcome hypotheses affected their expectations, price speculations, and strategy development when approaching an asset market.