Experimental Economics

, Volume 14, Issue 2, pp 223–240 | Cite as

Experimental asset markets with endogenous choice of costly asymmetric information

Article

Abstract

Asymmetric distribution of information, while omnipresent in real markets, is rarely considered in experimental financial markets. We present results from experiments where subjects endogenously choose between five information levels (four of them costly). We find that (i) uninformed traders earn the highest net returns, while average informed traders always perform worst even when information costs are not considered; (ii) over time traders learn to pick the most advantageous information levels (full information or no information); and (iii) market efficiency decreases with higher information costs. These results are mostly in line with the theoretical predictions of Grossman and Stiglitz (Am. Econ. Rev. 70:393–408, 1980) and provide additional insights that studies with only two information levels cannot deliver.

Keywords

Information costs Asset markets Experiment Value of information Asymmetric information 

JEL Classification

C91 D82 G1 

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Copyright information

© Economic Science Association 2010

Authors and Affiliations

  • Jürgen Huber
    • 1
  • Martin Angerer
    • 1
  • Michael Kirchler
    • 1
    • 2
  1. 1.Department of Banking and FinanceUniversity of InnsbruckInnsbruckAustria
  2. 2.Centre for FinanceUniversity of GothenburgGothenburgSweden

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