The Diversity of Information Acquisition Strategies in a Noisy REE Model with a Common Signal and Independent Signals

Satoshi Kawanishi
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Satoshi Kawanishi: Sophia University, Faculty of Economics, 7-1 Kioi-cho, Chiyoda-ku, Tokyo 102-8554, Japan

Chapter 7 in Recent Advances in Financial Engineering 2010, 2011, pp 119-150 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn this paper, I study a noisy REE model of asset market with two types of costly private signals: a common signal with an identical error term and independent signals with dispersed error terms. Studying investors' endogenous information acquisition, I show that (i) investors observing the common signal and those observing the independent signals are likely to coexist in the equilibrium, (ii) at most, three equilibrium strategies can coexist, and (iii) when the equilibrium has three strategies, the evolutionary learning dynamics of investors can exhibit detours and cyclical oscillation.

Keywords: Operations Research; Financial Engineering; Management; Mathematical Modeling; Credit Risk; Real Options; Optimal Investment; Heterogeneous Beliefs (search for similar items in EconPapers)
Date: 2011
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