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An experimental analysis of information acquisition in prediction markets

Page, Lionel and Siemroth, Christoph (2017) 'An experimental analysis of information acquisition in prediction markets.' Games and Economic Behavior, 101 (C). pp. 354-378. ISSN 0899-8256

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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.

Item Type: Article
Uncontrolled Keywords: Asymmetric information; Experimental asset markets; Information acquisition; Prediction markets
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 01 Sep 2016 09:08
Last Modified: 15 Jan 2022 00:46

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