Herding in a Laboratory Asset Market with a Rich Action Set
AbstractThis paper experimentally examines the efficiency of information aggregation in a simple asset market. Traders decide how to allocate an endowment of 1000 eurocent between two assets. Only one asset will be successful and that will pay back the amount invested in it. The experiment carried out here is original in that it considered a very rich action set. We find that when the action set is sufficiently rich, traders' actions, most of the time, perfectly reveal their private information. Further, the participants in the experiment performed probability matching and took such actions, which were broadly consistent with Bayesian learning.
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Bibliographic InfoPaper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 120022.
Length: 31 pages
Date of creation: Sep 2012
Date of revision:
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information cascade; information aggregation; herding; probability matching; Bayes' rule;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-CBE-2012-11-24 (Cognitive & Behavioural Economics)
- NEP-CTA-2012-11-24 (Contract Theory & Applications)
- NEP-EXP-2012-11-24 (Experimental Economics)
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