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Herding and price convergence in a laboratory financial market

We study whether herding can arise in a laboratory financial market 
in which agents trade sequentially. Agents trade an asset whose 
value is unknown and whose price is efficiently set by a market maker. 
We show that the presence of a price mechanism destroys the possibility 
of herding. Most agents follow their private information and 
prices converge to the fundamental value. This result contrasts with 
the case of a fixed price, where herding and cascades arise. When the 
price moves, however, agents may behave as contrarian, i.e., they may 
trade against the market, something not accounted for by the theory. 
Finally, we study whether informational cascades arise when trade is 
costly (e.g, because of a Tobin tax). With trade costs, most subjects 
rationally decided not to trade and the price was unable to aggregate 
private information efficiently.