Scandinavian Working Papers in Economics

UiS Working Papers in Economics and Finance,
University of Stavanger

No 2021/3: Entry and exit decisions under public and private information: An experiment

Aleksei Chernulich, John Horowitz, Jean Paul Rabanal (), Olga A Rud () and Manizha Sharifova
Additional contact information
Jean Paul Rabanal: University of Stavanger, Postal: University of Stavanger, NO-4036 Stavanger, Norway
Olga A Rud: University of Stavanger, Postal: University of Stavanger, NO-4036 Stavanger, Norway

Abstract: We design an experiment to study how reversible entry decisions are affected by public and private payoff disclosure policies. In our environment, subjects choose between a risky payoff, which evolves according to an autoregressive process, and a constant outside option payoff. The treatments vary the information disclosure rule on the risky payoff, such that in the public information treatment the risky payoff is always observable, while in the private information treatment, the risky payoff is observable only to the participants who enter the market. We find that under private information, market entry is higher, which suggests that subjects engage in exploration and place value on information.

Keywords: experiment; entry and exit decisions; bandit problems; information pro- vision; forecasting

JEL-codes: C91; D81; D83; D84; G11

43 pages, September 29, 2021

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