European Business Schools Librarian's Group
HEC Research Papers Series,
HEC Paris
No 1620: Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation1
Bruno Biais, Thomas Mariotti, Sebastien Pouget and Sebastien Pouget
Additional contact information
Bruno Biais: HEC Paris
Thomas Mariotti: University of Toulouse 1 Capitole
Sebastien Pouget: University of Toulouse 1 Capitole ; University of Toulouse 1 - Toulouse School of Economics (TSE)
Sebastien Pouget: Toulouse School of Economics
Abstract: We study asset pricing and risk sharing in experimental financial markets designed to test rational choice and competitive behavior in complete markets. We find that participants behave competitively but deviate from rationality: approximately 25% of their actions are first-order stochastically dominated. To interpret these experimental findings, we propose a random-choice model predicting that market-clearing prices and average trades should converge to those in the rational-choice competitive equilibrium as market size grows. Our experimental data support this convergence prediction. A structural estimation under CRRA utilities and logit choice probabilities reveals that approximately 20% of participants would have obtained higher expected utility in autarky, suggesting that bounded rationality can make market participation welfarereducing for a significant minority.
Keywords: Asset Pricing; Risk Sharing; Experimental Financial Markets; Random-Choice Model
64 pages, First version: November 17, 2025. Revised: March 10, 2026.
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