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The market process of capitalization: a laboratory experiment on the effectiveness of private information

Author

Listed:
  • Eduard Braun

    (Clausthal University of Technology)

  • Wiebke Roß

    (Clausthal University of Technology)

Abstract

The notion of present value is an integral part of economics. So far, however, its rationale rests upon the well-known neoclassical assumptions of complete information and perfect rationality. The present value derives as the result of a calculation that requires the knowledge of the discount rate and the future returns of the evaluated assets. This paper presents a laboratory experiment that demonstrates that the present value of assets can also be discovered by participants of a production process endowed with incomplete information. The knowledge concerning future returns is not given to any one, but dispersed among the participants who, in addition, have no idea of their position in the production chain. In accordance with Hayek’s theory of the market process as a discovery procedure, the present value is found without any one subject being able to determine it individually.

Suggested Citation

  • Eduard Braun & Wiebke Roß, 2018. "The market process of capitalization: a laboratory experiment on the effectiveness of private information," Journal of Evolutionary Economics, Springer, vol. 28(4), pages 951-960, September.
    • Handle: RePEc:spr:joevec:v:28:y:2018:i:4:d:10.1007_s00191-017-0508-6
    DOI: 10.1007/s00191-017-0508-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Present value; Market process; Ecological rationality; Private information; Experimental economics;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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