Coordination in the Presence of Asset Markets
Shimon Kogan, Anthony M. Kwasnica, Roberto A. Weber
American Economic Review · 2011 · Volume 101 · Issue 2
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)
Keywords
Design of Experiments: Laboratory, Individual, Search, Learning, Information and Knowledge, Communication, Belief, Contingent Pricing, Futures Pricing, option pricing, Information and Market Efficiency, Event Studies
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