The market process of capitalization: a laboratory experiment on the effectiveness of private information

Eduard Braun () and Wiebke Roß ()
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Eduard Braun: Clausthal University of Technology
Wiebke Roß: Clausthal University of Technology

Journal of Evolutionary Economics, 2018, vol. 28, issue 4, No 11, 960 pages

Abstract: Abstract The notion of present value is an integral part of economics. So far, however, its rationale rests upon the well-known neoclassical assumptions of complete information and perfect rationality. The present value derives as the result of a calculation that requires the knowledge of the discount rate and the future returns of the evaluated assets. This paper presents a laboratory experiment that demonstrates that the present value of assets can also be discovered by participants of a production process endowed with incomplete information. The knowledge concerning future returns is not given to any one, but dispersed among the participants who, in addition, have no idea of their position in the production chain. In accordance with Hayek’s theory of the market process as a discovery procedure, the present value is found without any one subject being able to determine it individually.

Keywords: Present value; Market process; Ecological rationality; Private information; Experimental economics (search for similar items in EconPapers)
JEL-codes: C91 D82 G12 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s00191-017-0508-6

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