Risk Aversion and Information Aggregation in Asset Markets

66 Pages Posted: 3 Apr 2019

See all articles by Antonio Filippin

Antonio Filippin

Università degli Studi di Milano; IZA Institute of Labor Economics

Marco Mantovani

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Facultés Universitaires Saint Louis à Bruxelles - CEREC

Date Written: February 15, 2019

Abstract

The paper investigates the relation between the risk preferences of traders and the information aggregation properties of an experimental call market. We find evidence inconsistent with the prediction that market-clearing prices are closer to the full revelation of the state when traders are more risk-averse. The observed pattern of prices is close to the risk-neutral benchmark, while individuals are risk averse both in a risk elicitation task and when estimating their risk aversion from their market activity. This purported conflict is explained by an attitude to exploit only part of the information possessed that we label operational conservatism. We show that operational conservatism represents an additional, although suboptimal, way to express one’s risk aversion. A remarkably consistent picture of measured risk preferences emerges then in our data. Independently-elicited risk attitudes retain the footprint of both the standard and the suboptimal facet of risk aversion estimated from subjects’ market activity.

JEL Classification: C81; C91; D81

Suggested Citation

Filippin, Antonio and Mantovani, Marco, Risk Aversion and Information Aggregation in Asset Markets (February 15, 2019). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 404. Available at SSRN: https://ssrn.com/abstract=3364647 or http://dx.doi.org/10.2139/ssrn.3364647

Antonio Filippin

Università degli Studi di Milano ( email )

Milan, 20122
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Marco Mantovani (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Facultés Universitaires Saint Louis à Bruxelles - CEREC ( email )

Brussels, 1000
Belgium
+32 2 7923551 (Phone)

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