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Information Aggregation in Double Auctions: Rational Expectations and the Winner's Curse

Guarnaschelli, Serena and Kwasnica, Anthony M. and Plott, Charles R. (2003) Information Aggregation in Double Auctions: Rational Expectations and the Winner's Curse. Information Systems Frontiers, 5 (1). pp. 63-77. ISSN 1387-3326. doi:10.1023/A:1022045923185.

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This paper inquires about the ability of double auction institutions to aggregate information in the context of a "common value" information structure that is known to produce the winner's curse in sealed bid environments. While many fundamental features of the economic trading mechanism are different from those studied in the context of sealed bids, the pattern of information distributed to the population of traders is the same. This gives us an opportunity to determine if the behaviors reported in sealed bid environments can be detected in the more active market environment. As such, the experiments are also a test of the robustness of earlier experiments that demonstrate that in economies with homogeneous preferences single compound securities organized by double auctions are able to aggregate information. The basic result is that a severe winner's curse is not observed. The irrationality observed in sealed bids does not extend itself to the double auction environment. Information aggregation is observed and the rational expectations model receives support.

Item Type:Article
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URLURL TypeDescription DOIArticle ItemSSWP 1136
Additional Information:© 2003 Kluwer Academic Publishers. Effort sponsored by the Defense Advanced Research Projects Agency (DARPA) and Air Force Research Laboratory, Air Force Material Command, USAF, under agreement number F30602- 00-2-0623. The U.S. Government is authorized to reproduce and distribute reprints for Governmental purposes notwithstanding any copyright annotations thereon. The views and conclusions contained herein are those of the authors and should not be interpreted as necessarily representing the official policies or endorsements, either expressed or implied, of the Defense Advanced Research Projects Agency (DARPA), the Air Force Research Laboratory, or the U.S. Government. Additional support of the National Science Foundation is also acknowledged as is the support of the Laboratory for Experimental Economics and Political Science of the California Institute of Technology. Formerly SSWP 1136.
Group:Social Science Working Papers
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Defense Advanced Research Projects Agency (DARPA)UNSPECIFIED
Air Force Research Laboratory, Air Force Material CommandF30602-00-2-0623
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Subject Keywords:information aggregation, asset markets, rational expectations, experimental economies
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Social Science Working Paper1136
Issue or Number:1
Record Number:CaltechAUTHORS:20140220-133533129
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:43909
Deposited On:20 Feb 2014 22:09
Last Modified:10 Nov 2021 16:45

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