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Information (Non)Aggregation in Markets with Costly Signal Acquisition

Author

Listed:
  • Brice Corgnet

    (emlyon business school, GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)

  • Cary Deck

    (UA - University of Alabama [Tuscaloosa], Chapman University)

  • Mark Desantis

    (Chapman University)

  • David Porter

    (Chapman University)

Abstract

Markets are often viewed as a tool for aggregating disparate private knowledge, a stance supported by past laboratory experiments. However, traders' acquisition cost of information has typically been ignored. Results from a laboratory experiment involving six treatments varying the cost of acquiring signals of an asset's value suggest that when information is costly, markets do not succeed in aggregating it. At an individual level, having information improves trading performance, but not enough to offset the cost of obtaining the information. Although males earn more through trading than females, this differential is offset by the greater propensity of males to buy information such that total profit is similar for males and females. Looking at individual skills, we find that higher theory of mind is associated with greater trading profit, greater overall profit, and an increased likelihood of acquiring information while cognitive reflection is associated with greater profit but not a greater propensity to acquire information.

Suggested Citation

  • Brice Corgnet & Cary Deck & Mark Desantis & David Porter, 2017. "Information (Non)Aggregation in Markets with Costly Signal Acquisition," Working Papers halshs-01686493, HAL.
  • Handle: RePEc:hal:wpaper:halshs-01686493
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01686493
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    References listed on IDEAS

    as
    1. Lintner, John, 1969. "The Aggregation of Investor's Diverse Judgments and Preferences in Purely Competitive Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 4(04), pages 347-400, December.
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    More about this item

    Keywords

    Prediction Markets; Information Acquisition; Laboratory Experiments; Behavioral Finance;

    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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