 Strategic information asymmetry in tail-risk marketsOmid M. Ardakani The North American Journal of Economics and Finance, 2025, vol. 79, issue C Abstract: This paper develops a novel information-theoretic measure of strategic asymmetry, asymmetric information entropy, that quantifies disparities in agents’ knowledge states through differential Shannon entropy. I integrate k-level cognitive hierarchies with Bayesian games to analyze how strategic depth attenuates information gaps, proving almost sure convergence and Pareto-optimal limit equilibria. Using generalized extreme value distributions, I show strategic restructuring alters financial market outcomes through parameter shifts in tail risk and location that converge geometrically under Lipschitz belief updating. Empirical analysis of U.S. tender offers reveals legal defenses (Level-2 strategies) increase bid premiums versus the baseline, while combined strategies exhibit subadditive effects. The proposed entropy measure formalizes Akerlof-style market failures, providing a quantitative basis for securities regulation and mechanism design. Keywords: Strategic information asymmetry; Cognitive hierarchy; Bayesian games; Extreme value theory; Tender offers; Market design (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:79:y:2025:i:c:s1062940825001007 DOI: 10.1016/j.najef.2025.102460 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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