Recently, the paper “Incentive schemes, framing, and market behaviour: evidence from an asset-market experiment” composed by Professor Cui Xuegang’s team was published on journal of Economic Behavior and Organization, a top journal of Behavioral Economics. (Link：https://doi.org/10.1016/j.jebo.2022.03.007).

Since the global financial crisis in 2008, the impact of compensation incentives on financial market bubbles hasreceived high attentionfrom the regulatory authorities of various countries. Many countries have enacted laws or policies to regulate compensation incentive schemes of (financial) enterprises, which has also aroused a large number of scholars' research interests. However, compensation incentive can be expressed in a variety of ways (" reward frame "or" punishment frame "), and different incentive schemes (linear incentive or tournament incentive) produce different incentive effects in different dimensions, thus affecting the economic decisions and financial transaction behavior of the incentive object.Because of the complexity of compensation incentive, the relationship between compensation incentive and financial market bubble has not been well revealed so far. This paper constructs a classical financial asset (stock) trading system in the laboratory, controls the two complex factors of incentive framework and tournament mechanism and studies how financial asset price and transaction behavior are affected by incentive framework and incentive mechanism by observing the subjects' buying, selling, holding and other trading decisions on high-risk assets, low-risk assets and risk-free assets and their returns. It is found that when the incentive framework (reward and punishment) and incentive mechanism (tournament mechanism or not) are changed and the convexity of the incentive function remains unchanged, both tournament incentive and penalty framework will increase the price bubbles of high-risk assets. Additional analysis shows that there are significant gender differences in financial transaction behavior and transaction results, suggesting that gender differences may be related to the mechanism of financial asset bubble generation. This paper reveals the formation mechanism of price bubbles in financial markets from the perspective of compensation incentives, which provides important policy enlightenment for the construction of micro-regulatory measures to prevent systemic financial risks.

Journal of Economic Behavior and Organization is a top journal in Behavioral Economics. Itfocuses on economic decision-making, organization and behavior and aims to help understand how the characteristics of human cognition, thinking and information affect the functioning of economic organizations and market economies, as well as the interrelationships between the evolution of economic institutions and various micro and macro behaviors.

CuiXuegang,Associate Dean of BNUBS, Director of the Laboratory of Cognitive Neuroscience Management, Professor of Accounting, and Doctoral Supervisor of Beijing Normal University. He was selected as the New Century Excellent Talents of the Ministry of Education, The National Outstanding Accountant of the Ministry of Finance, the Outstanding Teaching Teacher of Beijing, and the first batch of National Leading Talents in Accounting. He has presided over more than 10 scientific research projects, including key projects of national Social Science Fund and National Natural Science Fund and published more than 100 papers on Journal of Economic Behavior and Organization，Abacus，International Journal of Finance and Economics，China Economic Review，Asian Business and Management and so on. He has also published 10 books, gained 2 co-invention patents and acquired 1 software copyright. He has won the second prize of Beijing Philosophy and Social Science Outstanding Achievement Award twice, the first prize and the second prize of Beijing Education and Teaching Outstanding Achievement Award, Yang Jiwan Accounting Award outstanding Academic Monographs Award, China Industry-university-Research Cooperation Innovation Award (individual) and other awards.    

Provided by Discipline Research Office

Edited by Xu Jia

Reviewed by Cai Hongbo