Information Aggregation and the Cognitive Make-up of Traders

Brice Corgnet, Mark DeSantis and David Porter
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Mark DeSantis: Argyros School of Business and Economics, Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: We put forth that cognitive skills, such as cognitive reflection, are crucial for ensuring the informational efficiency of markets because they endow traders with the ability to infer others’ information from prices. Using laboratory experiments, we show that information aggregation is significantly enhanced when (i) all traders possess high levels of cognitive sophistication and (ii) this high level of cognitive sophistication is common information for all traders. Our findings shed light on the cognitive and informational constraints underlying the efficient market hypothesis.

Keywords: Information Aggregation; Market Efficiency; Cognitive Skills; Cognitive Finance; Experimental Finance (search for similar items in EconPapers)
JEL-codes: C92 D91 G14 G41 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:20-18

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