Coordination in the Presence of Asset Markets
AbstractWe explore the relationship between outcomes in a coordination game and a pre-play asset market where asset values are determined by outcomes in the subsequent coordination game. Across two experiments, we vary the payoffs from the market relative to the game, the degree of interdependence in the game, and whether traders' asset payoffs are dependent on outcomes in their own or another game. Markets lead to significantly lower efficiency across treatments, even when they produce no distortion of incentives in the game. Market prices forecast game outcomes. Our experiments shed light on how financial markets may influence affiliated economic outcomes. (JEL C91, D83, G13, G14)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 101 (2011)
Issue (Month): 2 (April)
Other versions of this item:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
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- Riedl, Arno & Rohde, Ingrid M.T. & Strobel, Martin, 2011.
"Efficient Coordination in Weakest-Link Games,"
IZA Discussion Papers
6223, Institute for the Study of Labor (IZA).
- Arno Riedl & Ingrid M. T. Rohde & Martin Strobel, 2011. "Efficient Coordination in Weakest-Link Games," CESifo Working Paper Series 3685, CESifo Group Munich.
- Riedl Arno & Rohde Ingrid M.T. & Strobel Martin, 2011. "Efficient Coordination in Weakest-Link Games," Research Memoranda 057, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
- Arno Riedl & Ingrid M.T. Rohde & Martin Strobel, 2011. "Efficient Coordination in Weakest-Link Games," Working Papers 201103, Murat Sertel Center for Advanced Economic Studies, Istanbul Bilgi University.
- Christoph Engel & Sebastian Kube & Michael Kurschilgen, 2011. "Can we manage first impressions in cooperation problems? An experimental study on “Broken (and Fixed) Windows”," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2011_05, Max Planck Institute for Research on Collective Goods.
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