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Experimental asset markets with endogenous choice of costly asymmetric information


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.

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Corresponding author

Correspondence to Michael Kirchler.

Additional information

We thank participants of MAFIN 2009 in Reykjavik, ESA 2010 in Copenhagen, Experimental Finance 2010 in Gothenburg, two anonymous referees, the editor Jacob Goeree, Michael Hanke, and Thomas Stöckl for very helpful comments on earlier versions of this paper. Financial support by the University of Innsbruck and the Austrian National Bank (OeNB-grant 12789) is gratefully acknowledged.

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Huber, J., Angerer, M. & Kirchler, M. Experimental asset markets with endogenous choice of costly asymmetric information. Exp Econ 14, 223–240 (2011).

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  • Information costs
  • Asset markets
  • Experiment
  • Value of information
  • Asymmetric information

JEL Classification

  • C91
  • D82
  • G1