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Reconsidering Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets

Author

Listed:
  • Brice Corgnet

    (Emlyon Business School)

  • Cary Deck

    (University of Alabama & Chapman University)

  • Mark DeSantis

    (Chapman University)

  • Kyle Hampton

    (Chapman University)

  • Erik O. Kimbrough

    (Chapman University)

Abstract

The ability of markets to aggregate diverse information is a cornerstone of economics and finance, and empirical evidence for such aggregation has been demonstrated in previous laboratory experiments. Most notably Plott and Sunder (1988) find clear support for the rational expectations hypothesis in their Series B and C markets. However, recent studies have called into question the robustness of these findings. In this paper, we report the result of a direct replication of the key information aggregation results presented in Plott and Sunder. We do not find the same strong evidence in support of rational expectations that Plott and Sunder report suggesting information aggregation is a fragile property of markets.

Suggested Citation

  • Brice Corgnet & Cary Deck & Mark DeSantis & Kyle Hampton & Erik O. Kimbrough, 2019. "Reconsidering Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets," Working Papers 19-11, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:19-11
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/269/
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    Cited by:

    1. Brice Corgnet & Mark DeSantis & David Porter, 2020. "Information Aggregation and the Cognitive Make-up of Traders," Working Papers 20-18, Chapman University, Economic Science Institute.
    2. Bossaerts, Frederik & Yadav, Nitin & Bossaerts, Peter & Nash, Chad & Todd, Torquil & Rudolf, Torsten & Hutchins, Rowena & Ponsonby, Anne-Louise & Mattingly, Karl, 2024. "Price formation in field prediction markets: The wisdom in the crowd," Journal of Financial Markets, Elsevier, vol. 68(C).
    3. Andrea Albertazzi & Friederike Mengel & Ronald Peeters, 2021. "Benchmarking information aggregation in experimental markets," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1500-1516, October.
    4. Frederik Bossaerts & Nitin Yadav & Peter Bossaerts & Chad Nash & Torquil Todd & Torsten Rudolf & Rowena Hutchins & Anne-Louise Ponsonby & Karl Mattingly, 2022. "Price Formation in Field Prediction Markets: the Wisdom in the Crowd," Papers 2209.08778, arXiv.org.
    5. Arturo Macias, 2022. "Capital structure irrelevance in the laboratory: an experiment with complete and asymmetric information," Experimental Economics, Springer;Economic Science Association, vol. 25(5), pages 1418-1440, November.
    6. Corgnet, Brice & DeSantis, Mark & Porter, David, 2021. "Information aggregation and the cognitive make-up of market participants," European Economic Review, Elsevier, vol. 133(C).
    7. Zehao Liu & Chengbo Xie, 2023. "Haircuts, interest rates, and credit cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(1), pages 69-109, July.
    8. Peeters, Ronald & Veiga, Helena & Vorsatz, Marc, 2025. "An experimental analysis of contagion in financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 171(C).

    More about this item

    Keywords

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    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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