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

Brice Corgnet, Cary Deck (), Mark DeSantis, Kyle Hampton and Erik Kimbrough
Additional contact information
Mark DeSantis: Chapman University
Kyle Hampton: Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: The ability of markets to aggregate dispersed information is a cornerstone of economics and finance. In a seminal experiment, Plott and Sunder (1988) offer support for the rational expectations hypothesis. However, recent laboratory experiments have called into question the robustness of those initial results. In this paper, we offer the first attempt to directly replicate key findings of the original study. Failing to replicate their results, the post-study probability that market performance is better described by rational expectations than the prior information (Walrasian) model is low. Given this result, we introduce a new treatment that implements a market structure consistent with naturally occurring prediction markets, which can be viewed as completing the original experimental design. In this new treatment, we find strong support for the rational expectations model. Thus, while the original paper showed conditions where markets can aggregate information, we attempt to identify sufficient conditions for such aggregation to be robust.

Keywords: Information Aggregation; Efficient Markets; Rational Expectations; Replication (search for similar items in EconPapers)
JEL-codes: C9 D4 D8 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp, nep-ore and nep-upt
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Citations: View citations in EconPapers (1)

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https://digitalcommons.chapman.edu/esi_working_papers/296/

Related works:
Working Paper: Reconsidering Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets (2019)
Working Paper: Reconsidering Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets (2019)
Working Paper: Reconsidering Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:20-03

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