Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets.

The study explores the information aggregation properties of experimental markets. A fully-revealing rational expectations equilibrium exists in the competitive model of each of the markets studied. For markets with a single compound security in which traders have identical preferences, the rational expectations equilibrium mod el works well. However, if traders are allowed to have different preferences in the single security case, the observed information aggregation is minimal and rational expectations are not attained. If the single security is transformed to a complete set of Arrow-Debreu , state-contingent claims, the rational expectations model works well even when preferences differ. Copyright 1988 by The Econometric Society.