Coordination in the Presence of Asset Markets
American Economic Review
vol. 101,
no. 2, April 2011
(pp. 927-47)
Abstract
We explore the relationship between outcomes in a coordination game and a pre-play asset market where asset values are determined by outcomes in the subsequent coordination game. Across two experiments, we vary the payoffs from the market relative to the game, the degree of interdependence in the game, and whether traders' asset payoffs are dependent on outcomes in their own or another game. Markets lead to significantly lower efficiency across treatments, even when they produce no distortion of incentives in the game. Market prices forecast game outcomes. Our experiments shed light on how financial markets may influence affiliated economic outcomes. (JEL C91, D83, G13, G14)Citation
Kogan, Shimon, Anthony M. Kwasnica, and Roberto A. Weber. 2011. "Coordination in the Presence of Asset Markets." American Economic Review, 101 (2): 927-47. DOI: 10.1257/aer.101.2.927Additional Materials
JEL Classification
- C91 Design of Experiments: Laboratory, Individual
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- G13 Contingent Pricing; Futures Pricing; option pricing
- G14 Information and Market Efficiency; Event Studies