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Related Experiment Video

Updated: May 16, 2026

The Collective Trust Game: An Online Group Adaptation of the Trust Game Based on the HoneyComb Paradigm

The Collective Trust Game: An Online Group Adaptation of the Trust Game Based on the HoneyComb Paradigm

Published on: October 20, 2022

Investment Dynamics with Natural Expectations.

Andreas Fuster¹, Benjamin Hebert, David Laibson

¹Federal Reserve Bank of New York.

International Journal of Central Banking

|December 18, 2012

Summary

Agents underestimate mean reversion, leading to overly optimistic beliefs in good times and pessimistic beliefs in bad times. This results in amplified investment cycles and excessive price volatility in financial markets.

Area of Science:

Behavioral finance
Macroeconomics
Financial econometrics

Background:

Economic agents often exhibit behavioral biases.
Misperceptions of fundamental dynamics can impact market behavior.

Purpose of the Study:

To model investment behavior with underestimation of mean reversion.
To analyze the impact of biased beliefs on asset prices and economic activity.

Main Methods:

Development of an agent-based investment model.
Analysis of model dynamics and resulting economic indicators.

Main Results:

Beliefs are excessively optimistic/pessimistic.
Asset prices and economic activity exhibit excess volatility.

Related Experiment Videos

Last Updated: May 16, 2026

The Collective Trust Game: An Online Group Adaptation of the Trust Game Based on the HoneyComb Paradigm

The Collective Trust Game: An Online Group Adaptation of the Trust Game Based on the HoneyComb Paradigm

Published on: October 20, 2022

Negative autocorrelation in excess returns and medium-run corporate profits.

Conclusions:

Underestimating mean reversion amplifies business cycles.
Biased beliefs contribute to financial market excess volatility.
The model illustrates 'animal spirits' and amplified economic fluctuations.