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Full-Text Articles in Economics
Forecasting Skills In Experimental Markets: Illusion Or Reality?, Brice Corgnet, Cary Deck, Mark Desantis, David Porter
Forecasting Skills In Experimental Markets: Illusion Or Reality?, Brice Corgnet, Cary Deck, Mark Desantis, David Porter
ESI Working Papers
Using experimental asset markets, we study the situation of a financial analyst who is trying to infer the fundamental value of an asset by observing the market’s history. We find that such capacity requires both standard cognitive skills (IQ) as well as social and emotional skills. However, forecasters with high emotional skills tend to perform worse when market mispricing is high as they tend to give too much emphasis to the noisy signals from market data. By contrast, forecasters with high social skills perform especially well in markets with high levels of mispricing in which their skills could help them …
Let’S Chat... When Communication Promotes Efficiency In Experimental Asset Markets, Brice Corgnet, Mark Desantis, David Porter
Let’S Chat... When Communication Promotes Efficiency In Experimental Asset Markets, Brice Corgnet, Mark Desantis, David Porter
ESI Working Papers
The growing prevalence of stock market chat rooms and social media suggests communication between traders may affect market outcomes. Using data from a series of laboratory experiments, we study the causal effect of trader communication on the price efficiency of markets. We show that communication allows markets to convey private information more effectively. This effect is most pronounced when the communication platform publicizes a reputation score that might identify a person as not being truthful. This illustrates the need for market designers to consider social interactions when designing market institutions to leverage the social motives that foster information aggregation.
On Booms That Never Bust: Ambiguity In Experimental Asset Markets With Bubbles, Brice Corgnet, Roberto Hernán-González, Praveen Kujal
On Booms That Never Bust: Ambiguity In Experimental Asset Markets With Bubbles, Brice Corgnet, Roberto Hernán-González, Praveen Kujal
ESI Working Papers
We study the effect of ambiguity on the formation of bubbles and on the occurrence of crashes in experimental asset markets à la Smith, Suchanek, and Williams (1988). We extend their framework to an environment where the fundamental value of the asset is ambiguous. We show that, when the fundamental value is ambiguous, asset prices tend to be lower than when it is risky although bubbles form in both the ambiguous and the risky environments. Additionally, bubbles do not crash in the ambiguous case whereas they do so in the risky one. These findings regarding depressed prices and the absence …
The Distribution Of Information And The Price Efficiency Of Markets, Brice Corgnet, Mark Desantis, David Porter
The Distribution Of Information And The Price Efficiency Of Markets, Brice Corgnet, Mark Desantis, David Porter
ESI Working Papers
Apparently contradictory evidence has accumulated regarding the extent to which financial markets are informationally efficient. Shedding new light on this old debate, we show that differences in the distribution of private information may explain why informational efficiency can vary greatly across markets. We find that markets are informationally efficient when complete information is concentrated in the hands of competing insiders whereas they are less efficient when private information is dispersed across traders. A learning model helps to illustrate why inferring others’ private information from prices takes more time when information is more dispersed. We discuss the implications of our findings …
What Makes A Good Trader? On The Role Of Intuition And Reflection On Trader Performance, Brice Corgnet, Mark Desantis, David Porter
What Makes A Good Trader? On The Role Of Intuition And Reflection On Trader Performance, Brice Corgnet, Mark Desantis, David Porter
ESI Working Papers
Using simulations and experiments, we pinpoint two main drivers of trader performance: cognitive reflection and theory of mind. Both dimensions facilitate traders’ learning about asset valuation. Cognitive reflection helps traders use market signals to update their beliefs whereas theory of mind offers traders crucial hints on the quality of those signals. We show these skills to be complementary because traders benefit from understanding the quality of market signals only if they are capable of processing them. Cognitive reflection relates to previous Behavioral Finance research as it is the best predictor of a trader’s ability to avoid commonly-observed behavioral biases.
Revisiting Information Aggregation In Asset Markets: Reflective Learning & Market Efficiency, Brice Corgnet, Mark Desantis, David Porter
Revisiting Information Aggregation In Asset Markets: Reflective Learning & Market Efficiency, Brice Corgnet, Mark Desantis, David Porter
ESI Working Papers
The ability of markets to aggregate disperse information leading to prices that reflect the fundamental value of an asset is key to assessing the often-debated efficiency of markets. We study information aggregation in the experimental environment originally created by Plott and Sunder (1988). Contrary to the current belief, we find that markets do not aggregate information. The model that best describes our data, as well as data on information aggregation subsequent to Plott and Sunder (1988), is prior information (Lintner, 1969). That is, traders use their private information but fail to use market prices to infer other traders’ information. We …