Abstract
Purpose - The chapter studies strategic default using an experimental approach. Design/methodology/approach - The experiment considers a stochastic asset process and a loan with no down-payment. The treatments are two asset volatilities (high and low) and the absence and presence of social interactions via a direct effect on the subject's payoff. Findings - I demonstrate that (i) people appear to follow the prediction of the strategic default model quite closely in the high asset volatility treatment, and that (ii) incorporating social interactions delays the strategic default beyond what is considered optimal. Originality/value- The study tests adequately the strategic default using a novel experimental design and analyzes the neighbor's effect on that decision. Copyright © 2013 by Emerald Group Publishing Limited.
| Original language | English |
|---|---|
| Title of host publication | Experiments in Financial Economics |
| Publisher | JAI Press |
| Pages | 31-52 |
| Volume | 16 |
| ISBN (Print) | 9781783501403 |
| DOIs | |
| Publication status | Published - 2013 |
| Externally published | Yes |
Publication series
| Name | Research in Experimental Economics |
|---|---|
| Volume | 16 |
| ISSN (Print) | 0193-2306 |
Bibliographical note
Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].Funding
This research was supported by funds granted by SIGFIRM at the University of California, Santa Cruz.
Research Keywords
- Laboratory experiment
- Optimal stopping
- Real options
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