Document Type
Article
Publication Date
5-2020
Abstract
We assess the effect of the cognitive make-up of traders on the informational efficiency of markets. We put forth that cognitive skills, such as cognitive reflection, are crucial for ensuring the informational efficiency of markets because they endow traders with the ability to infer others’ information from prices. Using laboratory experiments, we show that information aggregation is significantly enhanced when (i) all traders possess high levels of cognitive sophistication and (ii) this high level of cognitive sophistication is common information for all traders. Our findings shed light on the cognitive and informational constraints underlying the efficient market hypothesis.
Recommended Citation
Corgnet, B. DeSantis, M., & Porter, D. (2020). Information aggregation and the cognitive make-up of traders. ESI Working Paper 20-18. https://digitalcommons.chapman.edu/esi_working_papers/313/
Comments
ESI Working Paper 20-18
This article later underwent peer review and was published as:
Corgnet, B. DeSantis, M., & Porter, D. (2020). Information aggregation and the cognitive make-up of market participants. European Economic Review, 133, 103667. https://doi.org/10.1016/j.euroecorev.2021.103667