European Business Schools Librarian's Group
ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School
No WP1309: Can Rumors and Other Uninformative Messages Cause Illiquidity ?
Vranceanu Radu (), Damien Besancenot () and Delphine Dubart ()
Additional contact information
Vranceanu Radu: ESSEC Business School, Postal: Avenue Bernard Hirsch - BP 50105, 95021 CERGY-PONTOISE Cedex, FRANCE
Damien Besancenot: Centre d'Economie de l'Université Paris Nord (CEPN), Postal: Université Paris XIII - Paris Nord – CNRS : UMR7234, CEPN - CNRS , UFR de Sciences Economiques, 99, Avenue Jean-Baptiste Clément, 93430 VILLETANEUSE,
Delphine Dubart: ESSEC Business School, Postal: Avenue Bernard Hirsch - BP 50105, 95021 CERGY-PONTOISE Cedex, FRANCE
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.
Keywords: Illiquidity; Rumors; Market panic; Global games; Strategic uncertainty; Experiments
23 pages, First version: July 2013. Revised: June 2014.
Full text files
WP1309_MaJ.pdf
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