The Sooner, the Riskier: Temporal Psychological Distance and the Formation of Price Bubbles in Asset Markets
D. I. J. Samaranayake 
U. Ariyarathna
R. Munasinghe
T. S. S. Fernando
U. Rathnayake
A. Mithursan
Abstract
This study engaged 146 participants in asset-market activities, with each participant completing 10 rounds of trading. To encourage active participation, the study offered real currency rewards to those who increased their earnings. The investigation focused on the impact of “temporal psychological distance”—the time between market experiences—on price predictions and the formation of price bubbles in asset markets. The experiment recorded an overconfidence bias score for each participant, then investigated how the introduction of a time-distance treatment mediates participants’ confidence. Treatment effects were elicited as behavioural outcomes by recording the participant’s valuation judgement of the asset’s fundamental value through their disclosure on Willingness to Sell. The findings revealed that lengthening the time gap reduced the influence of overconfidence and its ability to create price bubbles in the asset market. Essentially, the longer the temporal psychological distance, the weaker the impact of overconfidence in driving price bubbles, and vice versa.
Keywords: Overconfidence, Asset Market, Price Predictions, Price Bubbles, Psychological Distance
Volume 16, Issue 2
December 31, 2025
Pages: 38- 60
DOI: http://doi.org/10.4038/cbj.v16i2.211
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Suggested citation:
Samaranayake, D. I. J., Ariyarathna, U., Munasinghe, R., Fernando, T. S. S., Rathnayake, U., & Mithursan, A. (2025). The sooner, the riskier: Temporal psychological distance and the formation of price bubbles in asset markets. Colombo Business Journal, 16(2), 38–60. http://doi.org/10.4038/cbj.v16i2.211
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D. I. J. Samaranayake
Behavioural and Experimental Research Group, Faculty of Management, University of Peradeniya, Sri Lanka
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U. Ariyarathna
Behavioural and Experimental Research Group, Faculty of Management, University of Peradeniya, Sri Lanka
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R. Munasinghe
Behavioural and Experimental Research Group, Faculty of Management, University of Peradeniya, Sri Lanka
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T. S. S. Fernando
Behavioural and Experimental Research Group, Faculty of Management, University of Peradeniya, Sri Lanka
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U. Rathnayake
Behavioural and Experimental Research Group, Faculty of Management, University of Peradeniya, Sri Lanka
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A. Mithursan
Behavioural and Experimental Research Group, Faculty of Management, University of Peradeniya, Sri Lanka