Equilibrium Dominance in Experimental Financial Markets
AbstractWe examine the predictive power of equilibrium dominance in experimental markets where firms with investment opportunities have an informational advantage over potential investors and are permitted to purchase a money-burning signal. Equilibrium dominance often fails to predict well when a Pareto-superior sequential equilibrium is also available. Instead, equilibrium selection appears to be related to the potential earnings of a more valuable firm that can signal its type successfully by defecting from the sequential equilibrium. Potential investors formulate their bids for firm equity based primarily on expectations formed adaptively in response to signaling choices made by firms. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
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Bibliographic InfoArticle provided by Society for Financial Studies in its journal Review of Financial Studies.
Volume (Year): 11 (1998)
Issue (Month): 1 ()
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Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Web page: http://www.rfs.oupjournals.org/
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- Cadsby, C,B. & Frank, M. & Maksimovic, V., 1992. "Equilibrium Dominance in Experimental Financial Market," Working Papers 1992-05, University of Guelph, Department of Economics and Finance.
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- Kübler, D. & Müller, W. & Normann, H.T., 2003. "Job Market Signalling and Screening: An Experimental Comparison," Discussion Paper 2003-124, Tilburg University, Center for Economic Research.
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- JosÃ© Luis Lima R. & Javier NuÃ±ez E., 2004. "Experimental Analysis of the Reputational Incentives in a Self Regulated Organization," Econometric Society 2004 Latin American Meetings 194, Econometric Society.
- Kawagoe, Toshiji & Takizawa, Hirokazu, 2009. "Equilibrium refinement vs. level-k analysis: An experimental study of cheap-talk games with private information," Games and Economic Behavior, Elsevier, vol. 66(1), pages 238-255, May.
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