We investigate, in a simple bilateral bargaining environment, the extent to which asymmetric information can induce individuals to engage in exchange where trade is not mutually profitable. We first establish a no-trade theorem for this environment. A laboratory experiment is conducted, where trade is found to occur between 16% and 32% of the time, depending on the specific details of the environment and trading mechanism. In most cases, buyers gain from such exchange, at the expense of sellers. An equilibrium model with naive, or 'cursed' beliefs accounts for some of the behaviour findings, but open questions remain.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6554.
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
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Marco Angrisani & Antonio Guarino & Steffen Huck & Nathan Larson, 2008.
"No-Trade in the Laboratory,"
WEF Working Papers
0045, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
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