Costly Information Acquisition in Decentralized Markets: An Experiment

45 Pages Posted: 1 Dec 2017 Last revised: 20 Apr 2019

See all articles by Elena N. Asparouhova

Elena N. Asparouhova

University of Utah - David Eccles School of Business

Peter Bossaerts

University of Melbourne - Department of Finance; University of Cambridge

Wenhao Yang

Chinese University of Hong Kong, Shenzhen

Date Written: November 18, 2017

Abstract

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

Suggested Citation

Asparouhova, Elena N. and Bossaerts, Peter L. and Yang, Wenhao, Costly Information Acquisition in Decentralized Markets: An Experiment (November 18, 2017). Available at SSRN: https://ssrn.com/abstract=3079240 or http://dx.doi.org/10.2139/ssrn.3079240

Elena N. Asparouhova

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Peter L. Bossaerts

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Department of Finance
Carlton, Victoria 3010
Australia

HOME PAGE: http://bmmlab.org

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Wenhao Yang (Contact Author)

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

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