Premium
PRIVATE INFORMATION ACQUISITION IN EXPERIMENTAL MARKETS PRONE TO BUBBLE AND CRASH
Author(s) -
King Ronald R.
Publication year - 1991
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1991.tb00657.x
Subject(s) - private information retrieval , rational expectations , asset (computer security) , crash , economic bubble , microeconomics , economics , monetary economics , financial economics , business , econometrics , computer science , computer security , programming language
This paper reports the results of twelve experimental markets designed to investigate whether a costly private information system decreases the propensity of price bubbles to form. A private information system is hypothesized to decrease traders' subjective uncertainty about the behavior of other traders by reinforcing common expectations for all traders. Results show that private information does not eliminate price bubbles, but asset prices converge toward the rational expectations predictions with trader experience. The price of private information is related to the expected gains derived from asset trading.