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Risk Aversion and Information Aggregation in Asset Markets

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  • Antonio, Filippin
  • Marco, Mantovani

Abstract

The paper investigates the relation between the risk preferences of traders and the information-aggregation properties of an experimental call market. We find evidence inconsistent with the prediction that market-clearing prices are closer to full revelation of the state when traders are more risk-averse. The observed pattern of prices is close to the risk-neutral benchmark, while individuals are risk averse both in a risk elicitation task and when estimating their risk aversion from their market activity. This purported conflict is explained by an attitude to exploit only part of the information possessed that we label operational conservatism. We show that operational conservatism represents an additional, although suboptimal, way to express one’s risk aversion. A remarkably consistent picture of measured risk preferences emerges then in our data. Independently-elicited risk attitudes retain the footprint of both the standard and the suboptimal facet of risk aversion estimated from subjects’ market activity.

Suggested Citation

  • Antonio, Filippin & Marco, Mantovani, 2019. "Risk Aversion and Information Aggregation in Asset Markets," Working Papers 404, University of Milano-Bicocca, Department of Economics, revised Apr 2019.
  • Handle: RePEc:mib:wpaper:404
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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