Abstract:

We use an experiment to study the information aggregation properties of markets when diverse and partial information about the true state of the world is held by informed traders spread across separated markets. We find that prices in the different markets can accurately reflect the true state when there are uninformed “information” intermediaries who are able to trade in multiple markets. We show that intermediaries with no prior information about the true state can facilitate its discovery across the different markets even when they have no incentives to do so. Furthermore, the accuracy of market prices does not depend on the degree of competition among the intermediaries. Overall, we show market prices can be informative even in the presence of market segmentation or fragmentation.