Additional Information Increases Uncertainty in the Securities Market: Using both Laboratory and fMRI Experiments

The paper first tries to replicate experiments by Huber (J Econ Dyn Control 31:2536---2572, 2007) and Huber et al. (J Econ Behav Org 65:86---104, 2008), which show that in double auction markets with uneven information distribution that is common knowledge, returns are a J-shaped function of the information known by different investors. Huber proposed the pattern of future earnings as the reason of J-shaped function. But our paper secondly asserts the psychological state of personal investor as the reason. It also asserts that the psychological state of personal investor often destroys efficient market. Functional magnetic resonance imaging scans of subjects in a simple game indicate that subjects with medium amounts of information use different brain areas. The paper argues that these patterns are consistent with medium-informed investors using Matching Law strategy rather than the maximizing strategy of the least and best informed investors. The paper motivates an accounting connection by remarking that financial statement disclosure is mandated in most developed stock markets.