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Herding in a Laboratory Asset Market with a Rich Action Set

Author

Listed:
  • Lora R. Todorova

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Bodo Vogt

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

This paper experimentally examines the efficiency of information aggregation in a simple asset market. Traders decide how to allocate an endowment of 1000 eurocent between two assets. Only one asset will be successful and that will pay back the amount invested in it. The experiment carried out here is original in that it considered a very rich action set. We find that when the action set is sufficiently rich, traders' actions, most of the time, perfectly reveal their private information. Further, the participants in the experiment performed probability matching and took such actions, which were broadly consistent with Bayesian learning.

Suggested Citation

  • Lora R. Todorova & Bodo Vogt, 2012. "Herding in a Laboratory Asset Market with a Rich Action Set," FEMM Working Papers 120022, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:120022
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    information cascade; information aggregation; herding; probability matching; Bayes' rule;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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