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American Economic Review: Vol. 101 No. 2 (April 2011)

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Coordination in the Presence of Asset Markets

Article 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.101.2.927

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)

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Authors

Kogan, Shimon (U TX)
Kwasnica, Anthony M. (PA State U)
Weber, Roberto A. (Carnegie Mellon U)

JEL Classifications

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


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