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Information (Non)Aggregation in Markets with Costly Signal Acquisition

Brice Corgnet (), Cary Deck, Mark DeSantis and David Porter
Additional contact information
Mark DeSantis: Chapman University, One University Drive, Orange, CA 92866

No 1735, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: Markets are often viewed as a tool for aggregating disparate private knowledge, a stance supported by past laboratory experiments. However, traders’ acquisition cost of information has typically been ignored. Results from a laboratory experiment involving six treatments varying the cost of acquiring signals of an asset’s value suggest that when information is costly, markets do not succeed in aggregating it. At an individual level, having information improves trading performance, but not enough to offset the cost of obtaining the information. Although males earn more through trading than females, this differential is offset by the greater propensity of males to buy information such that total profit is similar for males and females. Looking at individual skills, we find that higher theory of mind is associated with greater trading profit, greater overall profit, and an increased likelihood of acquiring information while cognitive reflection is associated with greater profit but not a greater propensity to acquire information.

Keywords: Prediction Markets; Information Acquisition; Laboratory Experiments; Behavioral Finance (search for similar items in EconPapers)
JEL-codes: C9 D8 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2017
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ftp://ftp.gate.cnrs.fr/RePEc/2017/1735.pdf (application/pdf)

Related works:
Journal Article: Information (non)aggregation in markets with costly signal acquisition (2018) Downloads
Working Paper: Information (Non)Aggregation in Markets with Costly Signal Acquisition (2018)
Working Paper: Information (Non)Aggregation in Markets with Costly Signal Acquisition (2017) Downloads
Working Paper: Information (Non)Aggregation in Markets with Costly Signal Acquisition (2017) Downloads
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