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Information Aggregation in Experimental Asset Markets: Traps and Misaligned Beliefs

Plott, Charles R. and Camerer, Colin F. and Noeth, Marcus and Webber, Martin (1999) Information Aggregation in Experimental Asset Markets: Traps and Misaligned Beliefs. Social Science Working Paper, 1060. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20140317-134842763

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Abstract

The capacity of markets to aggregate information has been conclusively demonstrated but he limitations of that capacity have still not been fully explored. In this paper, we demonstrate the existence of "information traps". These traps appear to be a sort of equilibrium in which information existing in the market does not become revealed in prices. The foundation for the equilibrium is a pattern of misaligned beliefs in which each person's actions are based upon mistaken beliefs about the information held by others. The mistakes, themselves, have a type of mutual compatibility and cannot become revealed by the price discovery process because individuals have no incentives or resources to adjust. Attempts to probe the nature of the phenomena involved two period markets with a contingent claim instruments, experienced participants, and unlimited short selling opportunities.


Item Type:Report or Paper (Working Paper)
ORCID:
AuthorORCID
Camerer, Colin F.0000-0003-4049-1871
Additional Information:The authors gratefully acknowledge the financial support for this research which was provided by the Caltech Laboratory for Experimental Economics and Political Science and by the Gesellschaft der Freunde der Universitat Mannheim. Helpful comments were received from Rob Bloomfield, Dan Friedman, Susanne Prantl, and seminar participants at the ESA meeting 1996, EFA meeting 1997 and the Verein fur Socialpolitik meeting 1997.
Group:Social Science Working Papers
Funders:
Funding AgencyGrant Number
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Gesellschaft der Freunde der Universitat MannheimUNSPECIFIED
Series Name:Social Science Working Paper
Issue or Number:1060
Record Number:CaltechAUTHORS:20140317-134842763
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20140317-134842763
Official Citation:Plott, Charles R. and Camerer, Colin F. and Noeth, Marcus and Webber, Martin. Information Aggregation in Experimental Asset Markets: Traps and Misaligned Beliefs. Pasadena, CA: California Institute of Technology, 1999. Social Science Working Paper, 1060.
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:44357
Collection:CaltechAUTHORS
Deposited By: Susan Vite
Deposited On:27 Mar 2014 21:08
Last Modified:03 Oct 2019 06:17

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