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“Less is more” or “more is better”? The effect of asymmetric information distribution on market efficiency and wealth inequality

Author

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  • Rocco Caferra

    (University of Bari Aldo Moro
    Unitelma Sapienza University of Rome)

  • Simone Nuzzo

    (University of Bari Aldo Moro)

  • Andrea Morone

    (University of Bari Aldo Moro)

Abstract

We provide experimental and empirical evidence on the role of information distribution and accuracy in solving market inefficiency and the related welfare implications. To this end, we vary both (i) the informativeness of the private signal released and (ii) the fraction of informed traders. At market level, results evidence how higher informativeness is not conclusive, since mispricing persists. Furthermore, a reduction of signal precision reflects traders’ uncertainty aversion through lower price volatility. Results are robust when both all and half of the players are informed (i.e., received the signals). At subject level, we observe that informed traders are gaining more profits. Anyway, the signal precision and distribution do not statistically change the profits of both net market-winners and net market-losers. This suggests that—on average—the intensity of asymmetric information distribution (i.e., the size of the information imbalance between informed and uniformed traders) does not alter the wealth distribution.

Suggested Citation

  • Rocco Caferra & Simone Nuzzo & Andrea Morone, 2023. "“Less is more” or “more is better”? The effect of asymmetric information distribution on market efficiency and wealth inequality," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(2), pages 233-250, April.
    • Handle: RePEc:spr:jeicoo:v:18:y:2023:i:2:d:10.1007_s11403-022-00365-6
    DOI: 10.1007/s11403-022-00365-6
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    More about this item

    Keywords

    Experimental finance; Asymmetric information; Wealth inequality; Market efficiency;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • G1 - Financial Economics - - General Financial Markets
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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