Information aggregation in a catastrophe futures market

Jason Shachat and Anthony Westerling
Additional contact information
Anthony Westerling: University of California, San Diego, USA, Postal: University of California, San Diego, USA

Managerial and Decision Economics, 2006, vol. 27, issue 6, 477-495

Abstract: We experimentally examine a reinsurance market in which participants have differing information regarding the probability distribution over losses. The key question is whether the market equilibrium reflects traders maximizing value with respect to their different priors, or whether the equilibrium is one based on a common belief incorporating all participants' information. When assuming subjects are expected value maximizers, we reject both full information aggregation and no information aggregation equilibria. We discover, as in past individual choice insurance experiments, that buyers under-assess the probabilities of large loss states, or alternatively, subjects assign larger utility values to losses than to comparable gains. After accounting for these decision theoretic concerns, the non-aggregation of information hypothesis explains the data better than full information aggregation. Copyright © 2006 John Wiley & Sons, Ltd.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1002/mde.1283 Link to full text; subscription required (text/html)

Related works:
Working Paper: Information Aggregation in a Catastrophe Futures Markets (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:27:y:2006:i:6:p:477-495

DOI: 10.1002/mde.1283

Access Statistics for this article

Managerial and Decision Economics is currently edited by Antony Dnes

More articles in Managerial and Decision Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().