Experimental asset markets with endogenous choice of costly asymmetric information

Asymmetric distribution of information, while omnipresent in real markets, is rarely considered in experimental financial markets. We present results from experiments where subjects endogenously choose between five information levels (four of them costly). We find that (i) uninformed traders earn the highest net returns, while average informed traders always perform worst even when information costs are not considered; (ii) over time traders learn to pick the most advantageous information levels (full information or no information); and (iii) market efficiency decreases with higher information costs. These results are mostly in line with the theoretical predictions of Grossman and Stiglitz (Am. Econ. Rev. 70:393–408, 1980) and provide additional insights that studies with only two information levels cannot deliver.