Experimental asset markets with endogenous choice of costly asymmetric information

Huber, Jürgen; Angerer, Martin; Kirchler, Michael

doi:10.1007/s10683-010-9264-2

Cited by 41 publications

(17 citation statements)

References 12 publications

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“…Using a total of six different treatments and 240 subjects, our findings show, in line with Huber et al (2011) and Page and Siemroth (2017), that traders, especially males, acquire an excessive number of signals thus harming their trading profits. In addition, our finding regarding the negative effect of knowing others' information purchasing decisions is of particular relevance.…”

Section: Introductionsupporting

confidence: 56%

“…It complements the work of Page and Siemroth (2017) by varying the number and the cost of the signals instead of focusing on institutional factors and by considering the case of aggregate certainty in line with the previous works of Plott and Sunder (1988) and Sunder (1992). Our work also complements Huber et al (2011) by considering a case in which traders pay for acquiring a signal, as in Sunder (1992), rather than for knowing the true value of the asset at an earlier date. We also extend previous works by assessing the effect of making information acquisition decisions commonly known to all traders at the beginning of each market.…”

Section: Introductionmentioning

confidence: 81%

“…8 The e$600 signal purchase budget could not be combined with the e$1200 that the trader could use to buy assets in the market and unused signal purchase budget money was added to the subject's earnings at the end of the trading period. This important design feature differed from Huber et al (2011) and Page and Siemroth (2017). 9 Keeping the signal purchase budget separate ensures 5 In both Plott and Sunder (1988) and Sunder (1992), only a single experimental session was run under each of several treatments that varied widely, making specific conclusions about any particular design feature problematic (see Corgnet et al 2015).…”

Section: Experimental Designmentioning

confidence: 99%

“…3 The experimental literature directly exploring the effect of costly information acquisition on market aggregation is limited to a few studies. This literature includes the seminal papers of Sunder (1992) and Copeland and Friedman (1992) as well as the more recent works of Huber et al (2011), Page and Siemroth (2017), and Asparouhova et al (2017). Sunder (1992) introduces information cost in two ways.…”

Section: Introductionmentioning

confidence: 99%

“…Also, traders who received more cash and shares in the high endowment treatment acquired more information than the remaining traders. Huber et al (2011) also extend the work of Sunder (1992) by considering the case in which traders can bid to become a (possibly fully) informed trader at an early period in the experiment following the design of Huber (2007) and Kirchler (2010). The authors consider a total of five different information levels which differ in the exact timing in which a trader learns the true value of the asset.…”

Section: Introductionmentioning

confidence: 99%

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Information (non)aggregation in markets with costly signal acquisition

Corgnet

Deck

DeSantis

et al. 2018

Journal of Economic Behavior & Organization

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Abstract:Markets are often viewed as a tool for aggregating disparate private knowledge, a stance supported by past laboratory experiments. However, traders' acquisition cost of information has typically been ignored. Results from a laboratory experiment involving six treatments varying the cost of acquiring signals of an asset's value suggest that when information is costly, markets do not succeed in aggregating it. At an individual level, having information improves trading performance, but not enough to offset the cost of obtaining the information. Although males earn more through trading than females, this differential is offset by the greater propensity of males to buy information such that total profit is similar for males and females. Looking at individual skills, we find that higher theory of mind is associated with greater trading profit, greater overall profit, and an increased likelihood of acquiring information while cognitive reflection is associated with greater profit but not a greater propensity to acquire information. Keywords:Prediction Markets, Information Acquisition, Laboratory Experiments, Behavioral Finance JEL codes: Markets are often viewed as a tool for aggregating disparate private knowledge, a stance supported by past laboratory experiments. However, traders' acquisition cost of information has typically been ignored. Results from a laboratory experiment involving six treatments varying the cost of acquiring signals of an asset's value suggest that when information is costly, markets do not succeed in aggregating it. At an individual level, having information improves trading performance, but not enough to offset the cost of obtaining the information. Although males earn more through trading than females, this differential is offset by the greater propensity of males to buy information such that total profit is similar for males and females.Looking at individual skills, we find that higher theory of mind is associated with greater trading profit, greater overall profit, and an increased likelihood of acquiring information while cognitive reflection is associated with greater profit but not a greater propensity to acquire information.

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Section: Introductionsupporting

confidence: 56%