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Diversity in Cognitive Ability Enlarges Mispricing in Experimental Asset Markets

Nobuyuki Hanaki, Eizo Akiyama, Yukihiko Funaki () and Ryuichiro Ishikawa
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Eizo Akiyama: University of Tsukuba, Japan

No 2017-08, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: Does diversity of cognitive ability among market participants increase mispricing? Does common knowledge of heterogeneity in relation to cognitive ability of market participants further increase mispricing? We investigated these questions by measuring subjects' cognitive ability and categorizing those above median ability as type `H' and those below median ability as type `L'. We then constructed three market types, each containing six traders: 6H, 6L, and 3H3L. Subjects were informed of their own cognitive type and, depending on the treatment, that of the others in their market. We found that heterogeneous markets (3H3L) generated significantly larger mispricing than homogeneous markets (6H or 6L) regardless of whether subjects were informed about the cognitive type of others in their market. Thus, diversity of cognitive ability among market participants increased mispricing. However, common knowledge of heterogeneity or homogeneity in the market did not have a signi cant additional effect.

Keywords: Cognitive ability; Heterogeneity; Mispricing; Experimental asset markets (search for similar items in EconPapers)
JEL-codes: C90 D84 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2017-03
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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