An experimental analysis of information acquisition in prediction markets
Page, Lionel & Siemroth, Christoph (2015) An experimental analysis of information acquisition in prediction markets. Games and Economic Behavior. (In Press)
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We study which factors in terms of trading environment and trader characteristics determine individual information acquisition in experimental asset markets. Traders with larger endowments, existing inconclusive information, lower risk aversion, and less experience in financial markets tend to acquire more information. Overall, we find that traders overacquire information, so that informed traders on average obtain negative profits net of information costs. Information acquisition and the associated losses do not diminish over time. This overacquisition phenomenon is inconsistent with predictions of rational expectations equilibrium, and we argue it resembles the overdissipation results from the contest literature. We find that more acquired information in the market leads to smaller differences between fundamental asset values and prices. Thus, the overacquisition phenomenon is a novel explanation for the high forecasting accuracy of prediction markets.
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|Item Type:||Journal Article|
|Keywords:||Asymmetric information, Experimental asset markets, Information acquisition, Prediction markets|
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
|Copyright Owner:||Copyright 2015 Elsevier Inc.|
|Deposited On:||09 Dec 2015 00:40|
|Last Modified:||13 Dec 2015 21:26|
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