Munich Personal RePEc Archive

Trading Participation Rights to the Red Hat Puzzle. Will Markets allocate the rights for performing decision tasks to the more abled players?

Choo, Lawrence C.Y (2014): Trading Participation Rights to the Red Hat Puzzle. Will Markets allocate the rights for performing decision tasks to the more abled players?

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Abstract

This paper investigates the conventional wisdom that markets would naturally allocate the rights for performing decisional task to those players who might be best suited to perform the task. We embedded the decisional tasks in a stylised setting of a game, motivated by Littlewood(1953) Red Hat Puzzle, when the optimal choices in the game require players to employ logical and epistemological reasoning. We present a treatment where players are permitted to trade their participation rights to the game. The payoffs are furthermore calibrated such that the players who know the optimal choice in the game should value the rights strictly more than those who do not. However, aggregated performances in this treatment were found to be significantly lower than the control treatments where players were not permitted to trade their participation rights, providing little support for the conventional wisdom. We show that this finding could be attributed to price bubbles in the markets for participations rights.

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