How Markets Shape Prices for Skewed Assets: Price Reversal in Multi-Assets Experimental Markets

This paper explores the pricing of skewed assets in multi-asset markets where assets with both positive and negative skewness coexist, a context that remains understudied in the existing literature. Using a series of laboratory experiments, I examine whether the preference for positively skewed assets observed in individual decision-making settings extends to multi-assets market environments. I begin by demonstrating that traders strongly prefer positively skewed assets when making individual investment decisions in a traditional BDM (Becker et al. [1964]) task. However, when these assets are traded in continuous double auction markets, this preference is reversed: negatively skewed assets are consistently overvalued relative to positively skewed ones, contradicting individual-level biases. Further experiments decompose market complexities by adjusting the market size, trading frequency, and the number of assets. Simplifying market settings reduces mispricing, but none fully restore the preferences for positively skewed assets observed in individual contexts, revealing that these factors collectively drive the pricing reversals. These findings highlight how market complexity can reshape trader behavior and suggest that asset pricing is context-dependent.

Keywords: Skewed assets, Asset pricing, Behavioral finance, Experimental markets.

JEL Classification: C90, D53, G10, G40