Information Validates the Prior: A Theorem on Bayesian Updating and Applications

Navin Kartik, Frances Xu Lee and Wing Suen

American Economic Review: Insights, 2021, vol. 3, issue 2, 165-82

Abstract: We develop a result on expected posteriors for Bayesians with heterogenous priors, dubbed information validates the prior (IVP). Under familiar ordering requirements, Anne expects a (Blackwell) more informative experiment to bring Bob's posterior mean closer to Anne's prior mean. We apply the result in two contexts of games of asymmetric information: voluntary testing or certification, and costly signaling or falsification. IVP can be used to determine how an agent's behavior responds to additional exogenous or endogenous information. We discuss economic implications.

JEL-codes: C11 D82 D84 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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Working Paper: Information Validates the Prior: A Theorem on Bayesian Updating and Applications (2020)
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DOI: 10.1257/aeri.20200284

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