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Are We Always Rational When Judging The Markets? Let’s See!

“Bubble” is a word that appears very often in current news articles and television programs dealing with the economy. People are constantly debating the gold bubble, the tech bubble, the housing bubble … but what are these really? If we all agree to pay a certain price for something, what’s to say that it’s not worth that much? If we know that it’s a bubble, can it really be one?

Articles by Betterment Editors
By the Editorial Staff Betterment Resource Center Published Aug. 15, 2011
Published Aug. 15, 2011
1 min read

In order to answer some of these questions and really get to the bottom of this “bubble” phenomenon, we decided we’re going to do a little experiment in the office.

Indiana professor Arlington Williams seemed to have a good understanding of what truly makes a bubble, so we thought we would recreate an experiment of his. In his experiment, Professor Williams created a simple stock market for some of his college students.

This time, we’ll create a similar stock market for the people in the Betterment office.

Will our Betterment employees be able to stay smart, or will they fall into the same pattern as millions of Americans and offer more than a stock is worth, only to see that price fall… hard?

We’ll let you know on Wednesday, once we’re done. Every experiment needs a hypothesis, so tweet us (@betterment) and let us know yours!

This article and experiment were devised by our very own Sarah Brock. Sarah is one of the three excellent interns we’ve had at Betterment over the summer. Tune in for Part 2 later this week.

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