Christophe Bisière, Jean-Paul Décamps, and Stefano Lovo, Risk Attitude, Beliefs Updating and the Information Content of Trades: An Experiment, TSE Working Paper, n. 09-036, May 2009, revised May 2012.


We conduct a series of experiments that simulate trading in financial markets and which allows us to identify the different effects that subjects’ risk attitudes and belief updating rules have on the information content of the order flow. We find that there are very few risk-neutral subjects and that subjects displaying risk aversion or risk-loving tend to ignore private information when their prior beliefs on the asset fundamentals are strong. Consequently, private information struggles penetrating trading prices. We find evidence of non-Bayesian belief updating (confirmation bias and under-confidence). This reduces (improves) market efficiency when subjects’ prior beliefs are weak (strong).

JEL codes

  • G14: Information and Market Efficiency • Event Studies • Insider Trading
  • D82: Asymmetric and Private Information • Mechanism Design