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Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets

Plott, Charles R. and Sunder, Shyam (1988) Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets. Econometrica, 56 (5). pp. 1085-1118. ISSN 0012-9682. http://resolver.caltech.edu/CaltechAUTHORS:20140303-144328921

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Abstract

The idea that markets might aggregate and disseminate information and also resolve conflicts is central to the literature on decentralization (Hurwicz, 1972) and rational expectations (Lucas, 1972). We report on three series of experiments all of which were predicted to have performed identically by the theory of rational expectations. In two of the three series (one in which participants trade a complete set of Arrow-Debreu securities and a second in which all participants have identical preferences), double auction trading leads to efficient aggregation of diverse information and rational expectations equilibrium. Failure of the third series to exhibit such convergence demonstrates the importance of market institutions and trading instruments in achievement of equilibrium.


Item Type:Article
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http://dx.doi.org/10.2307/1911360 DOIJSTOR Article
http://www.jstor.org/stable/1911360JSTORJSTOR Article
http://resolver.caltech.edu/CaltechAUTHORS:20140303-144328921Related ItemEarlier version published as Social Science Working Paper 463
Additional Information:© 1998 Econometric Society. Manuscript received May, 1985; final revision received September, 1987. The authors gratefully acknowledge the financial support of this research which was provided by the National Science Foundation, Cal Tech Program for Enterprise and Public Policy, Indian Institute of Management at Ahmedabad, and the University of Minnesota. We have benefited from our discussions with Jim Jordan and detailed comments of two anonymous reviewers. We alone are responsible for the errors.
Group:Social Science Working Papers
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Funding AgencyGrant Number
NSFUNSPECIFIED
Caltech Program for Enterprise and Public PolicyUNSPECIFIED
Indian Institute of Management at AhmedabadUNSPECIFIED
University of MinnesotaUNSPECIFIED
Subject Keywords:rational expectations, aggregation of information, efficiency of security markets, experimental economics, completeness of security market, dynamics of rational expectations equilibrium, efficiency of contingent-claims markets
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Social Science Working Paper463
Record Number:CaltechAUTHORS:20140303-144328921
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20140303-144328921
Official Citation:Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets Charles R. Plott and Shyam Sunder Econometrica , Vol. 56, No. 5 (Sep., 1988) , pp. 1085-1118 Published by: The Econometric Society Article DOI: 10.2307/1911360 Article Stable URL: http://www.jstor.org/stable/1911360
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:44102
Collection:CaltechAUTHORS
Deposited By: Susan Vite
Deposited On:03 Mar 2014 22:57
Last Modified:25 Sep 2017 17:46

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