Decision Making Under Information Asymmetry: Experimental Evidence on Belief Refinements

·         Pooling behavior, in which firms make the same choice regardless of their market prospects, was widespread among experimental participants, relative to separating behavior, in which firms make the distinct choices based on their market prospects. Participants were more than three times more likely to pool than to separate.

·         Pooling behaviors were especially common among participants who reported a high level of understanding of the experimental setting, and the degree of pooling increased in later rounds of the experiment.

·         Participants who made pooling decisions were rewarded by participants playing the role of an external INVESTOR and earned significantly more in the experimental market than participants who made separating decisions.

·         Leveraging the behavioral insight that real decision makers will pool under certain circumstances can materially affect the implications of existing operations theory.

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