EconPapers    
Economics at your fingertips  
 

Revisiting Information Aggregation in Asset Markets: Reflective Learning & Market Efficiency

Brice Corgnet (), Mark DeSantis and David Porter
Additional contact information
Mark DeSantis: Economic Science Institute & Argyros School of Business and Economics, Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: The ability of markets to aggregate disperse information leading to prices that reflect the fundamental value of an asset is key to assessing the often-debated efficiency of markets. We study information aggregation in the experimental environment originally created by Plott and Sunder (1988). Contrary to the current belief, we find that markets do not aggregate information. The model that best describes our data, as well as data on information aggregation subsequent to Plott and Sunder (1988), is prior information (Lintner, 1969). That is, traders use their private information but fail to use market prices to infer other traders’ information. We argue that reflecting on asset prices to infer others’ information requires specific skills related to the concept of cognitive reflection. We develop a learning model in which only a subset of the traders possess this reflective capacity. We show, using both simulations and laboratory experiments, that information aggregation can only be achieved when the market is populated by highly reflective traders and this high level of cognitive reflection is commonly known to all of the traders.

Keywords: Information aggregation; market efficiency; experimental asset markets; behavioral finance (search for similar items in EconPapers)
JEL-codes: C92 G02 G14 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18) Track citations by RSS feed

Downloads: (external link)
http://www.chapman.edu/research-and-institutions/e ... in-asset-markets.pdf

Related works:
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:chu:wpaper:15-15

Access Statistics for this paper

More papers in Working Papers from Chapman University, Economic Science Institute Contact information at EDIRC.
Bibliographic data for series maintained by Megan Luetje ().

 
Page updated 2020-05-28
Handle: RePEc:chu:wpaper:15-15