Trading Participation Rights to the “Red Hat Puzzle”. An Experiment

Lawrence Choo ()

No 1408, Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper investigates the conventional wisdom that markets should allocate the rights for performing decisional tasks to those players who might be best suited to perform the task. I embed the decisional tasks in a stylised setting of a game, motivated by Littlewood (1953) Red Hat Puzzle, where the optimal choices in the game require players to employ logical and epistemological reasoning. I present a treatment where players are permitted to trade their participation rights to the game. The payo?s are furthermore calibrated such that those players who know the optimal choices in the game should value the participation rights strictly more than those who do not. However, aggregated performances in this treatment were found to be significantly lower than the control treatments where players were not permitted to trade their participation rights, providing little support for the conventional wisdom. I show that this finding could be attributed to price “bubbles” in the markets for participations rights.

Keywords: Game Theory; Trading Markets; Experimental Economics; Red Hat Puzzle. (search for similar items in EconPapers)
JEL-codes: C72 C92 G02 G12 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-exp and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:1408

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