Information aggregation with heterogeneous traders

Cary Deck (), Tae In Jun, Laura Razzolini () and Tavoy Reid

Journal of Behavioral and Experimental Finance, 2024, vol. 43, issue C

Abstract: The efficient market hypothesis predicts that asset prices reflect all available information. Recent experimental work found the rational expectation model to outperform the prior information model in contingent claim markets when traders hold homogeneous values, despite the no trade equilibrium. However, recent experiments have also demonstrated the inability of contingent claim markets to successfully aggregate information when traders hold highly differentiated asset values. These prior findings beg the question of whether homogeneous values are a necessary condition for efficient market outcomes in contingent claim markets. The experiments reported in this paper show that homogeneous values are not a necessary condition for information aggregation.

Keywords: Information aggregation; Rational expectations; Laboratory experiments (search for similar items in EconPapers)
JEL-codes: C9 D8 G1 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Information Aggregation with Heterogeneous Traders (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:43:y:2024:i:c:s2214635024000716

DOI: 10.1016/j.jbef.2024.100956

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