The role of information on the strategies of traders in experimental asset markets

Abstract

In this paper, we analyse the behaviour of investors in experimental asset markets under different information treatments. This experiment is an extension of Alfarano et al. work (On the role of hereogeneous and imperfect information in a laboratory market, 2006). However, apart from considering a treatment where traders can buy imprecise information about the future value of the dividend and another where they can buy no information at all, we add two more treatments: i) one where the information is costless and homogenenous for all the traders; and ii) a second one where the traders can buy true information about the future dividend at a cost increasing with the temporal horizon. This last treatment, the “true information” treatment, will be the focal point of the study. Our results show that the “true-info” and “homogeneous-info” treatments are the most efficient. In the econometric analysis we try to find the link between the purchase of information, the strategy followed by traders in the market and the profit made at the end of the experiment.