Do option-like incentives induce overvaluation? Evidence from experimental asset markets

Martin Holmén, Michael Kirchler, Daniel Kleinlercher

Research output: Chapter in Book/Report/Conference proceedingConference contributionScientificpeer-review


One potential reason for bubbles evolving prior to the financial crisis
was excessive risk taking stemming from option-like incentive schemes in
financial institutions. By running laboratory asset markets, we investigate
the impact of option-like incentives on price formation and trading behavior.
(i) We observe that option-like incentives induce significantly higher
market prices than linear incentives. (ii) We further find that option-like
incentives provoke subjects to behave differently and to take more risk
than subjects with linear incentives. (iii) We finally show that trading at
inflated prices is rational for subjects with option-like incentives since it
increases their expected payout.
Original languageEnglish
Title of host publicationFinancial Management Association European Conference
Publication date2012
Publication statusPublished - 2012
MoE publication typeA4 Article in conference proceedings
Event2012 European Conference of Financial Management Association (FMA) - Istanbul , Turkey
Duration: 06.06.201208.06.2012


  • 511 Economics

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