Observational Learning with Competitive Prices

Zikai Xu

Papers from arXiv.org

Abstract: Will people eventually learn the value of an asset through observable information? This paper studies observational learning in a market with competitive prices. Comparing a market with public signals and a market with private signals in a sequential trading model, we find that Pairwise Informativeness (PI) is the sufficient and necessary learning condition for a market with public signals; and Avery and Zemsky Condition (AZC) is the sufficient and necessary learning condition for a market with private signals. Moreover, when the number of states is 2 or 3, PI and AZC are equivalent. And when the number of states is greater than 3, PI and Monotonic Likelihood Ratio Property (MLRP) together imply asymptotic learning in the private signal case.

Date: 2022-02, Revised 2022-05
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