Immediate Disclosure or Secrecy? The Release of Information in Experimental Asset Markets

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This paper reports the results of experimental asset markets designed to investigate how the public disclosure of uncertain information affects market and individual outcomes. In some markets, no information is released as trading starts, and in others, an imperfect pre-announcement is disclosed. The reliability of the pre-announcement varies across markets. Our data indicate under-reaction to a pre-announcement that is highly reliable and over-reaction to one with much lower reliability. Price volatility is higher and allocational efficiency is lower with a pre-announcement that reflects substantial uncertainty. Furthermore, when the reliability of the pre-announcement is low, traders extract a smaller proportion of the total attainable profit. Thus, in a highly uncertain environment better outcomes may result when information is withheld. These results have important policy implications regarding the disclosure of information by the Federal Reserve. In a highly uncertain environment, better outcomes may actually result with less information.