The Impact of Exogenous Shocks on Expectation Formation

The experiment will be conducted in a laboratory setting. Across all treatment, the dividend is fixed at 30 yen and the discount rate at 5%, yielding a fundamental price of 600. Participants will be divided into groups of approximately six and assigned to one of the following four treatments:

1.Control group (without shock)
2.Positive-shock treatment group
3.Neutral-shock treatment group
4.Negative-shock treatment group

In all treatment groups, the experiment consists of 60 periods, and participants are asked to forecast the price in each period. The realized price in each period depends on all participants’ forecasts within the group and a stochastic random shock. In the control group, the stochastic shock follows an independent and identically distributed process throughout the entire experiment. In the treatment groups, between periods 31 and 34, the standard deviation of the shock is set to 10% of the previous period’s price (p_{t-1} × 10%), and the expected value is set to +p_{t-1} × 10% for the positive-shock group, 0 for the neutral-shock group, and -p_{t-1} × 10% for the negative-shock group.

In period 35, to equalize the magnitude of the shocks across groups, prices are set as follows: p_{35} = 1.4 × p_{30} for the positive-shock group, p_{35} = p_{30} for the neutral-shock group, and p_{35} = 0.6 × p_{30} for the negative-shock group. This study examines how participants’ trend-following behavior changes before and after the introduction of exogenous shocks under each treatment condition. The research questions are as follows:
(1) Do exogenous shocks alter participants’ trend-following behavior?
(2) Does the direction of the shock affect the change in trend-following behavior?
(3) Is there heterogeneity in the change in trend-following behavior depending on participants’ cognitive reflection ability?

2025-12-08

2026-03-31

The primary outcome is the correlation between the prior price change (from two to one period before) and forecast deviation from the realized price in the previous period.

The treatment effect is identified by comparing the correlation between the prior price change and forecast deviation before and after the introduction of the shock.

Approximately 180 participants will be recruited from the subject pool of the Institute of Social and Economic Research, Osaka University. The treatment variable is the distribution parameter of the random shock applied to the realized stock price. Upon entering the laboratory, participants will be randomly assigned to one of the treatment groups. Each participant will receive a participation fee of 1,000 yen and an additional performance-based payment depending on the accuracy of their price forecasts.

Not available

Participants are randomly assigned to experimental groups through a public lottery, by drawing cards indicating seat numbers before entering the laboratory. Each group of participants seated together receives the same treatment. Participants are not informed about the treatment corresponding to each seat number or the content of each treatment.

Group (6 participants per group)

Yes

30 groups
– 6 control groups (without shock)
– 8 positive-shock treatment groups
– 8 neutral-shock treatment groups
– 8 negative-shock treatment groups

180 college students

1. 6 control groups (without shock)
2. 8 positive-shock treatment groups
3. 8 neutral-shock treatment groups
4. 8 negative-shock treatment groups
Each group is composed of approximately six participants.