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Can Rumors and Other Uninformative Messages Cause Illiquidity ?

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Radu Vranceanu
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Abstract

In the model, a group of investors are invited to participate to a high-yield collective project. The project succeeds only if a minimum participation rate is reached. Before taking their decision, investors receive a vague statement about the outcome of a past investment decision. If investors believe that the message has an impact on the beliefs of the others, the problem can be analyzed as a typical global game and would present a threshold equilibrium. If not, in theory both an equilibrium where all invest and an equilibrium where no one invests can occur. In a Lab experiment, a large number of subjects adopt switching strategies consistent with the threshold equilibrium and appear to respond to the orientation of the message. Insights apply to contagion and market manipulation episodes.
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Dates and versions

hal-00841167 , version 1 (04-07-2013)
hal-00841167 , version 2 (15-07-2014)

Identifiers

  • HAL Id : hal-00841167 , version 2

Cite

Radu Vranceanu, Damien Besancenot, Delphine Dubart. Can Rumors and Other Uninformative Messages Cause Illiquidity ?. 2014. ⟨hal-00841167v2⟩
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