Disagreement, information and welfare

Jernej Copic

No 1344, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: In a stylized strategic situation, two individuals form consistent (self-confirming) assessments as classical statisticians. In equilibrium, where individuals are rational and sophisticated, there are two outcomes: (i) disagreement bears no idiosyncratic risks, minimizes aggregate welfare, individuals cannot recover the truth, and may hold different assessments; (ii) agreement is robust, maximizes welfare, and assessments coincide with the truth. A subjective Pareto criterion compares outcomes based on assessments that players may hold. Whereas agreement is Pareto efficient, disagreement subjectively Pareto- dominates agreement. Under equilibrium assessments, individuals disagree on redistribution. The example relates to 'agreeing to disagree' (Aumann 1976), trade and information (Milgrom and Stokey 1982), and a toy macroeconomic example.

Date: 2015
New Economics Papers: this item is included in nep-mic
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