Diversity in Cognitive Ability Enlarges Mispricing

Nobuyuki Hanaki, Eizo Akiyama (), Yukihiko Funaki () and Ryuichiro Ishikawa

No 2015-29, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: How does known diversity in cognitive ability among market participants in ufence market outcomes? We investigated this question by first measuring subjects' cognitive ability and categorizing them as 'H' type for those above median ability and 'L' type for those below median ability. We then constructed three kinds of markets with six traders each: 6H, 6L, and 3H3L. Subjects were informed of their own cognitive type and that of the others in their market. We found heterogeneous markets (3H3L) generated signi cantly larger mispricing than homogeneous markets (6H or 6L). Thus, known diversity in cognitive ability among market participants impacts mispricing.

Keywords: Cognitive ability; Heterogeneity; Mispricing; Experimental asset markets (search for similar items in EconPapers)
JEL-codes: C90 D84 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2015-09
New Economics Papers: this item is included in nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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