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

Navin Kartik, Frances Lee and Wing Suen

Papers from arXiv.org

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.

Date: 2020-05, Revised 2020-07
New Economics Papers: this item is included in nep-exp, nep-gth and nep-mic
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Citations: View citations in EconPapers (1)

Published in American Economic Review: Insights, June 2021

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Journal Article: Information Validates the Prior: A Theorem on Bayesian Updating and Applications (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2005.05714

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