Final answer:
Information-motivated traders trade more frequently, leveraging what they believe to be superior information, differing from pure investors who usually rely on financial statements and have a longer-term investment horizon. The disparity in trading behaviors arises from a fundamental concept in financial markets called 'imperfect information,' where there is an asymmetry of information between firm insiders and outside investors.
Step-by-step explanation:
Information-motivated traders are most likely to differ from pure investors in that they trade more frequently. This trading behavior is driven by the traders' belief that they possess superior information, which they hope to capitalize on before it becomes widely known and reflected in the market price. In contrast, pure investors generally make decisions based on financial statements, have a long-term investment horizon, and may not have the same level of access to proprietary information.
When discussing how firms choose between sources of financial capital, it's essential to understand the concept of imperfect information. Imperfect information in financial markets means that buyers and sellers do not have full and equal information. Particularly, those running a firm usually have more knowledge about the firm's potential for future profits compared to outside investors providing capital.
Understanding the nature of participants in financial markets also involves recognizing their intertemporal decision making, which refers to the choices individuals make concerning consumption and savings over different time periods. These decisions are not immediate but extend across a period of time, sometimes long-term, involving planning for future consumption versus immediate satisfaction.