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Coordination in the presence of asset markets


Kogan, Shimon; Kwasnica, Anthony M; Weber, Roberto A (2011). Coordination in the presence of asset markets. American Economic Review, 101(2):927-947.

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.

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.

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9 citations in Web of Science®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:April 2011
Deposited On:30 Nov 2011 16:41
Last Modified:17 Feb 2018 14:06
Publisher:UNSPECIFIED
ISSN:0002-8282
OA Status:Green
Publisher DOI:https://doi.org/10.1257/aer.101.2.927

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