[We develop a theoretical model to analyze the effects of libertarian paternalism on information production and financial decision making. Individuals in our model appreciate the information content of the recommendations made by a social planner. This affects their incentive to gather information, and in turn the speed at which information spreads across market participants, via social learning or formal advice channels. We characterize situations in which libertarian paternalism improves welfare and contrast them with scenarios in which this policy is suboptimal because of its negative impact on the production and propagation of information.]

We develop a theoretical model to analyze the effects of libertarian paternalism on information production and financial decision making. Individuals in our model appreciate the information content of the recommendations made by a social planner. This affects their incentive to gather information, and in turn the speed at which information spreads across market participants, via social learning or formal advice channels. We characterize situations in which libertarian paternalism improves welfare and contrast them with scenarios in which this policy is suboptimal because of its negative impact on the production and propagation of information.

ABSTRACT We perform an experimental study to assess the effect of complexity on asset trading. We find that higher complexity leads to increased price volatility, lower liquidity, and decreased trade efficiency especially when repeated bargaining takes place. However, the channel through which complexity acts is not simply due to the added noise induced by estimation error. Rather, complexity alters the bidding strategies used by traders, making them less inclined to trade, even when we control for estimation error across treatments. As such, it appears that adverse selection plays an important role in explaining the trading abnormalities caused by complexity.