Time pressure reduces financial bubbles: evidence from a forecasting experiment

Abstract We investigate whether time pressure exacerbates or mitigates bubbles in laboratory experiments. We find that under high time pressure price volatility is lower and market prices are closer to their fundamental value. This is due to participants using simpler adaptive forecasting strategies, instead of the self-reinforcing extrapolative expectations that they use under low time pressure, and which are conducive to the emergence of bubbles. In addition, by substantially increasing the number of decision periods in our experiment, we find that in the long run prices tend to converge to their fundamental value, also in the absence of time pressure.