Predictably Irrational Behavior
Our stock market experiment results are in. The experiment began with the introduction of a single-stock market. We offered one stock – called FOO – an imaginary up-and-coming tech company.
– Everyone starts with $2,000 and 10 shares of FOO.
– FOO produces (randomly generated) dividends between $0 and $20 each round, averaging $10 per round.
– With a total of 15 rounds, a share should be worth $150 (15 rounds x $10).
– As the experiment continues, the stock should be worth less and less – $140 at round 2, $130 at round 3, and $0 at the end.
The game
Round 1 started off slowly, with shares being sold at prices well below their value (Kiran freaked out and sold a share worth $150 for only $18) but as the rounds progressed, the value of the shares began to grow.
By round 3, FOO reached its peak price of $121 per share, just as people began to realize what it was really worth. Those who understood attempted to buy the shares for slightly less than their value, in the hopes that unprepared employees (a.k.a. the software coders) would allow them to buy low and collect the dividends.
Once the trend shifted to buying, share prices rose above their expected value. This is the type of irrational behavior that would normally create a bubble – who pays $95 for a share worth $70?!
The Betterment team, however, was too smart (or too flustered – take your pick) to let the bubble grow. Share prices gradually returned to their expected value, avoiding the “pop” (rapid decrease in price) one usually associates with a bubble.
The results
While some lost money, and some gained, one thing became clear: no matter how smart you think you are, trying to out-smart the market is near impossible. People are predictably irrational. It’s better to set it and forget it.
No surprises that our CEO Jon Stein won the game, with a neat total of $4398.
The above results come from an in-office experiment conducted by Betterment intern Sarah Brock. Thanks Sarah!
Original content by Betterment
Recommended Content
View article library
What the Ultimate Betterment User Looks Like
We're going to break down how to get the most value out of the goal-based money manager Betterment is designed to be.

2020 Tax Season Calendar: The Dates You Need To Know
Before you get started with filing your taxes this year, take a look at our tax season calendar to make sure you’re aware of important tax deadlines.

How We Use Your Dividends To Keep Your Tax Bill Low
Every penny that comes into your account is used to rebalance dynamically—and in a tax-savvy way.
How would you like to get started?
Manage spending with Checking
Checking with a Visa® debit card for your daily spending.
Save cash and earn interest
Grow your cash savings for general use for upcoming expenses.
Invest for a long-term goal
Build wealth or plan for your next big purchase.
Invest for retirement
Set up traditional, Roth, or SEP IRAs to save for the golden years.
See details and disclosure for Betterment's articles and FAQs.