Does paying for data change investment decisions?

Abstract

Do investors trade differently when paying for market data versus getting it for free? In an investment experiment, we randomize whether subjects pay for or freely receive identical order flow data. Payment inflates perceived data informativeness by 11%, increases responsiveness of return forecasts to data by 31%, and leads to 14% larger forecast errors. We further document a sunk-cost mechanism concentrated among low financial literacy investors: payment raises investment levels while reducing the response of investment to own return forecasts. Offering data as a paid add-on distorts beliefs and behavior, with the burden falling disproportionately on the least sophisticated investors.