Costly Information Acquisition in Decentralized Markets: An Experiment
45 Pages Posted: 1 Dec 2017 Last revised: 20 Apr 2019
Date Written: November 18, 2017
This study tests the rationality of the decisions to purchase information, the informational efficiency of prices, and the optimality of the resulting allocations with a series of laboratory experiments in decentralized markets. The theory predicts that markets with dispersed information and natural buyers and sellers converge to a fully revealing equilibrium. It is profitable to pay for information and as such, the Grossman-Stiglitz paradox does not emerge. Statistically significant improvements in both price efficiency and allocative efficiency are documented across trading periods. In contrast with centralized markets, participants in decentralized markets remain willing to pay for information in all replications.
Keywords: Decentralized Markets, Experiment, Experimental Finance, Information Acquisition
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