| The increased calls for regulation of asset markets following repeated boom-bust cycles have focused on market structures that are purported to cause financial bubbles. This paper asks if there are neurologic factors that cause bubbles. We tested a leading theory of bubble formation, insufficient learning, in a laboratory asset market. Participants (N=178) were randomly assigned to receive Naltrexone, caffeine or placebo. The opioid receptor antagonist Naltrexone inhibits reinforcement learning. Bubbles formed in all three conditions, but were larger in amplitude and in the deviation from fundamental value in the Naltrexone condition. Modeling the price time series, we find it exhibits volatility clustering as found in high frequency stock exchange trading. Our findings indicate asset markets bubbles recur because they have a neural basis. |
