Information aggregation in Arrow–Debreu markets: an experiment

Lawrence Choo, Todd R. Kaplan, Ro’i Zultan

Research output: Contribution to journalArticlepeer-review


Studies of experimental and betting markets have shown that markets are able to efficiently aggregate information dispersed over many traders. We study information aggregation in Arrow–Debreu markets using a novel information structure. Compared to previous studies, the information structure is more complex, allows for heterogeneity in information among traders—which provides insights into the way in which information is gradually disseminated in the market—and generates situations in which all traders hold identical beliefs over the traded assets’ values, thus providing a harsh stress test for belief updating. We find little evidence for information aggregation and dissemination in early rounds. Nonetheless, after traders gain experience with the market mechanism and structure, prices converge to reveal the true state of the world. Elicited post-market beliefs reveal that markets are able to efficiently aggregate dispersed information even if individual traders remain uninformed, consistent with the marginal trader hypothesis.

Original languageEnglish
Pages (from-to)625-652
Number of pages28
JournalExperimental Economics
Issue number3
StatePublished - 1 Sep 2019

Bibliographical note

Funding Information:
We thank Ariel Levy, Emma-Riikka Myllymäki, and participants at the ESA 2016 international meeting in Jerusalem, Experimental Finance 2015 in Nijmegen, Exeter Prize 2016 workshop and World Finance Conference 2017 in Sardinia for helpful comments and discussion. The authors would like to thank Shyam Sunder whose suggestions motivated this experimental research. Funding was provided by University of Exeter.

Publisher Copyright:
© 2017, The Author(s).


  • Arrow–Debreu markets
  • Information aggregation
  • Prediction markets
  • Red hat puzzle

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)


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