Experiments on asymmetric information

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Information asymmetries are an important driver of many economic phenomena. The uncertainty that arises from them puts even theoretically rational agents at a distinct disadvantage which can cause less efficient outcomes. In the lab, information asymmetries can cause further problems by increasing the cognitive load for subjects substantially. However, many interactions take place between a more informed party and a less informed party. Thus, it is important to study asymmetric information, and the institutions in which they arise, to inform policy on ways to mitigate them. A commonly proposed solution is information transfer. By allowing agents to voluntarily share private information, they are given a chance to create a perfect information environment in which these problems from asymmetric information no longer exist. In this dissertation, I run three experiments testing asymmetric information and information sharing in the contexts of a Cournot Oligopoly, Final-Offer Arbitration, and a conventional arbitration game. In the first two, agents are given the ability to share private information explicitly, and I am interested in their incentives to do so as well as in how sharing that information affects outcomes. In the third paper, I study the cognitive load of asymmetric information by having subjects switch roles in an attempt to help them better understand their opponent's position. Overall, the sharing of private information is often a good thing for the parties involved, though the specific timing and underlying assumptions of the theoretical model matter. Overall, I find that subjects in experiments do recognize the incentives to share information when given the chance, though not as well as predicted by theory. When they do share in situations where it theoretically is beneficial to do so, they are rewarded. However, asymmetric information remains a difficult obstacle to overcome. Subjects have difficulty correctly assessing the position of their opponents, and many fail to see the benefits of sharing information.

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