Measuring the impact of information aggregation mechanisms: An experimental investigation

• Published in: Journal of economic behavior & organization Vol. 78; no. 3; pp. 302 - 318
• Main Authors: Bennouri, Moez, Gimpel, Henner, Robert, Jacques
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.05.2011; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Economic Behavior & Organization
• Subjects: Aggregate analysis; Aggregation; Auction; Auctions; Auktionstheorie; Bids; Bonds; Börsengang; Cheap-talk; domain_shs.eco.fin; Economics and Finance; Effectiveness studies; Humanities and Social Sciences; Information; Information aggregation; Information gathering; Information management; Informationsökonomik; Initial public offering; Initial public offerings; Laboratories; Market; Market design; Market design Information aggregation Cheap-talk Auction Initial public offering; Sales; Test; Treasury bonds; Information aggregation; Initial public offering; D44; Auction; Market design; C91; G14; Cheap-talk; D83; D82
• ISSN: 0167-2681; 1879-1751; 0167-2681
• DOI: 10.1016/j.jebo.2011.01.016

► We compare the effectiveness of market-based and cheap-talk information aggregation mechanisms (IAM). ► In a laboratory experiment, we study how information provided by IAMs interacts with private and public information and affect bidding behavior in a multi-unit common-value uniform-price auction. ► In market-based IAMs, information gathering prevails and subsequent bidding shows that subjects acknowledge the precision of information. ► In cheap-talk IAMs, there is almost no transmitted information. This paper measures the effectiveness of market-based and cheap-talk information aggregation. Both information aggregation mechanisms (IAMs) are frequently used prior to IPOs and sales of Treasury bonds – it is largely acknowledged that they provide agents with useful information for subsequent bidding. In a laboratory experiment, we study how information provided by IAMs interacts with private and public information and how agents integrate it in their strategic behavior in a multi-unit common-value uniform-price auction. In market-based IAMs, information gathering prevails and subsequent bidding shows that subjects acknowledge the precision of information. However, in cheap-talk IAMs, there is almost no transmitted information.