Asymmetric information A laboratory experimental analysis

Abstract

Modern information systems technology, including expanded availability of local area networks, provides potentially fertile means for studying information related problems across functional business areas. Our work demonstrates the development and use of a networked system designed to investigate a traditionally controversial problem in financial markets, the impact of insider information. The research methodology used to tackle this issue incorporates the use of a networked system that we developed to conduct carefully controlled laboratory experiments. We emphasize this methodology as an alternative to techniques using recorded historical market data. The latter approaches are limited by an inability to accurately identify which traders possess and access inside information. Our system incorporates a communication and recording network among work stations with each station possessing stand alone decision support system capabilities. We demonstrate use of the system and present the results and accompanying analyses of a series of experiments relating to impacts of inside information.