Title: Rational Inattention in Asset Markets

Speaker: Jiao Peiran, Associate Professor of Finance, School of Business and Economics, Maastricht University, Research Fellow at Nuffield College University of Oxford and Dutch Institute for Pensions & Ageing, Co-Director of Maastricht Center for Behavioral Insights, Secretary of the Society for Experimental Finance. His research spans behavioral finance, experimental economics, psychology and neuroscience, focusing on experience-based learning, information processing and limited attention, and investor sustainability preferences. His works are published in top journals such as Review of Financial Studies.

Abstract: This paper studies how rationally inattentive traders allocate information across assets and how those choices shape market outcomes. We design a repeated two-asset call-market experiment in which subjects first choose the precision of asset-specific signals and then trade both assets in a call market. The treatments compare two information technologies: an entropy cost, which favors deepening information about selected assets, and a linear precision cost, which makes high-variance assets more attractive to learn about. Halfway through the market rounds, one asset receives a permanent volatility shock. Pre-shock outcomes are balanced across treatments. After the shock, signal and posterior variances rise sharply for the shocked asset in both treatments, so it becomes less precisely learned rather than attracting a broad reallocation of attention. The linear cost attenuates this deterioration and modestly improves precision for the unshocked asset. Market outcomes point in the same direction: pricing errors and volatility rise mainly for the shocked asset, while we find little evidence of contagion. Individual orders show that lower information precision is associated with more conservative bids, wider bid-ask spreads, lower bid quantities, and lower final holdings. We discuss implications of our results for theory and practice.

Date & time: 13 July 2026, 14:00 - 17:00

Venue: B609, Yifu Information Technology Building, Central Campus, SDU