Final Report Summary - FAME (Prices and Expectations in Asset Markets – a Field Experiment) A series of empirical research and laboratory experiments were conducted to investigate the role of traders’ beliefs and sentiments in asset markets on prices and market outcomes. Two types of experiments involving belief elicitation were conducted to study the role of beliefs and how they evolve with time and experience, with the understanding that investors form the same types of beliefs, and that prices and market outcome depend on these belies as the determinants of investors’ actions.The experiments tested how individuals form beliefs about the beliefs of their peers (also known as “second order beliefs”). Results show that people are more sophisticated than expected by researchers, as evidenced by previous research. In addition, this experiment shows inconsistency between what people believe and how they act. This inconsistency may be the reason for the discrepancy between actual and reported sophistication among individuals.The empirical research focuses on how current events affect market outcomes. Unlike previous research that links market outcomes to current events directly, we link current events to investors’ sentiments and then measure how changes in these sentiments affected market outcomes. By that, we measure the indirect sentiment effect on prices.The first study shows how the Israeli stock exchange react to counter-terror military operations that should not have any direct effect on stock outcome. We are able to show how the market reacts not only to the event itself, but to the way it evolves in the media. A different case study was the protestation events that took place in Israel during the summer of 2011. This study followed the reaction of the Israeli stock market to the actions of food chain retailers, which were the prime target of the protests. We were able to show that asset prices did not react only to the news, but also to how the owners of these food chain retailers reacted to it.Both empirical and laboratory experiments link and complement in their focus on traders’ beliefs and market outcomes. We were able to show that asset markets react to certain events as they have an influence on traders’ beliefs.