Information aggregation in double auctions: Rational expectations and the winner's curse

Serena Guarnaschelli, Anthony Mark Kwasnica, Charles R. Plott

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This paper inquires about the ability of double auction institutions to aggregate information in the context of a "common value" information structure that is known to produce the winner's curse in sealed bid environments. While many fundamental features of the economic trading mechanism are different from those studied in the context of sealed bids, the pattern of information distributed to the population of traders is the same. This gives us an opportunity to determine if the behaviors reported in sealed bid environments can be detected in the more active market environment. As such, the experiments are also a test of the robustness of earlier experiments that demonstrate that in economies with homogeneous preferences single compound securities organized by double auctions are able to aggregate information. The basic result is that a severe winner's curse is not observed. The irrationality observed in sealed bids does not extend itself to the double auction environment. Information aggregation is observed and the rational expectations model receives support.

Original languageEnglish (US)
Pages (from-to)63-77
Number of pages15
JournalInformation Systems Frontiers
Volume5
Issue number1
DOIs
StatePublished - Jan 1 2003

Fingerprint

Double Auction
Rational Expectations
Aggregation
Agglomeration
Experiments
Irrationality
Economics
Information Structure
Experiment
Robustness
Demonstrate
Context

All Science Journal Classification (ASJC) codes

  • Software
  • Theoretical Computer Science
  • Information Systems
  • Computer Networks and Communications

Cite this

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Information aggregation in double auctions : Rational expectations and the winner's curse. / Guarnaschelli, Serena; Kwasnica, Anthony Mark; Plott, Charles R.

In: Information Systems Frontiers, Vol. 5, No. 1, 01.01.2003, p. 63-77.

Research output: Contribution to journalArticle

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