An Experimental Analysis of Information Acquisition in Prediction Markets

Page, Lionel; Siemroth, Christoph

doi:10.2139/ssrn.2571710

Cited by 6 publications

(27 citation statements)

References 30 publications

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“…All traders in our market start with the same initial endowment of cash and assets, and hence the wealth effect is absent in our setting. That agents with larger endowments acquire more information has been shown experimentally elsewhere (Page and Siemroth ()).…”

Section: Discussionmentioning

confidence: 52%

“…A typical way to gauge the quality of transaction prices as forecasting tools is to evaluate their calibration ability, that is, whether they are good estimates of the likelihood of the predicted event (Page and Clemen (2013), Page and Siemroth ()). Figure provides evidence on calibration for each of the four treatments.…”

Section: Resultsmentioning

confidence: 99%

“…We employed the ball‐and‐urn setup of the experiments conducted by Anderson and Holt (), and we followed Page and Siemroth () in explaining the setting to the participants. At the start of each period, a virtual urn (A or B) was randomly selected by the computer, with each urn having an equal chance of being chosen.…”

Section: Experimental Designmentioning

confidence: 99%

“…Huber, Angerer, and Kirchler () demonstrate that it is possible for informed traders to obtain lower net profits on average compared to uninformed traders. A recent study by Page and Siemroth () shows that traders are more likely to acquire costly information if they have a larger endowment in terms of cash and assets, if their existing information is inconclusive, and if they are less risk‐averse. To the best of our knowledge, ours is the first paper to study the question of how social communication affects market outcomes with costly and endogenous information acquisition in experimental asset markets…”

mentioning

confidence: 99%

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Costly Information Acquisition, Social Networks, and Asset Prices: Experimental Evidence

Halim¹,

Riyanto²,

Roy³

2019

The Journal of Finance

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We design an experiment to study the implications of information networks for incentives to acquire costly information, market liquidity, investors' earnings, and asset price characteristics in a financial market. Social communication crowds out information production as a result of an agent's temptation to free ride on the signals purchased by her neighbors. Although information exchange among traders increases trading volume, improves liquidity, and enhances the ability of asset prices to reflect the available information in the market, it fails to improve price informativeness. Net earnings and social welfare are higher with information sharing due to reduced acquisition of costly signals.

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Section: Discussionmentioning

confidence: 52%

Section: Resultsmentioning

confidence: 99%

Section: Experimental Designmentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Costly Information Acquisition, Social Networks, and Asset Prices: Experimental Evidence

Halim¹,

Riyanto²,

Roy³

2019

The Journal of Finance

View full text Add to dashboard Cite

show abstract

“…2 Finally, mispricing has also been observed in setups which allow for costly acquisition of private information (e.g. Huber, Angerer and Kirchler, 2011;Page and Siemroth, 2017;Corgnet, Deck, DeSantis and Porter 2018).…”

Section: Introductionmentioning

confidence: 99%

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

et al. 2019

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The ability of markets to aggregate diverse information is a cornerstone of economics and finance, and empirical evidence for such aggregation has been demonstrated in previous laboratory experiments. Most notably Plott and Sunder (1988) find clear support for the rational expectations hypothesis in their Series B and C markets. However, recent studies have called into question the robustness of these findings. In this paper, we report the result of a direct replication of the key information aggregation results presented in Plott and Sunder. We do not find the same strong evidence in support of rational expectations that Plott and Sunder report suggesting information aggregation is a fragile property of markets.

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Overweighting of public information in financial markets: A lesson from the lab

Ruiz-Buforn

Camacho-Cuena

Morone

et al. 2021

Journal of Banking & Finance

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We experimentally study the information aggregation process in a laboratory financial market when a public signal is released. The public disclosure crowds out information demand and reduces price informativeness. The latter effect is primarily caused by the overweighting of public information into prices. We are the first in providing evidence that strategic pricing concerns trigger the overweighting effect and the consequent market overreaction to public disclosures. From an economic policy perspective, we give support that, when deciding their communication strategy, the regulator can mitigate the market overreaction by properly setting the level of information transparency.

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An Experimental Analysis of Information Acquisition in Prediction Markets

Cited by 6 publications

References 30 publications

Costly Information Acquisition, Social Networks, and Asset Prices: Experimental Evidence

Costly Information Acquisition, Social Networks, and Asset Prices: Experimental Evidence

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

Overweighting of public information in financial markets: A lesson from the lab

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