Asset pricing in decentralised markets
In a series of controlled laboratory experiments, we tested the rationality of the decisions to purchase information, the informational efficiency of prices and the optimality properties of the resulting allocations in decentralised markets. Theory predicts that markets with dispersed information and natural buyers and sellers converge to a fully revealing equilibrium. It is profitable to pay for information and as such, the famous Grossman-Stiglitz paradox does not emerge. We found statistically significant improvements in both price efficiency and allocational efficiency in the course of the experiment. Our participants remained willing to pay for information, in contrast with centralised markets, where information may aggregate so fast that the price of information drops to zero.