Misinformation and Market Dynamics: A Cyber-Physical Network Framework for Belief Formation, Consensus, and Welfare Implications

Ioannis Papastaikoudis, Jeremy Watson and Ioannis Lestas

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper presents a cyber-physical systems (CPS) framework to model the interplay between market price dynamics and social belief formation in a decentralized setting. The physical layer captures the evolution of prices through a networked market system governed by linear supply, demand, and crossprice elasticity relationships. The cyber layer represents belief formation via a hypergraph-structured learning model, where agents update expectations through distributed Kalman filters based on noisy price observations and group-level interactions. We analyze how informational frictions—driven by social structure, media influence, or cognitive limitations—induce delays in belief con-vergence to equilibrium prices. These delays, in turn, generate dynamic welfare losses due to suboptimal economic decisions. By linking convergence rates to hypergraph Laplacian spectra, we show how group-level information structures determine the speed and equity of learning processes. Our findings provide a theoretical foundation for studying misinformation and its economic costs in markets shaped by decentralized learning and social influence.

Keywords: Cybernetics of Economic Networks; Distributed Kalman Filter; Social Welfare (search for similar items in EconPapers)
JEL-codes: C32 D47 D85 (search for similar items in EconPapers)
Date: 2025-06-20
New Economics Papers: this item is included in nep-mst and nep-net
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econ.cam.ac.uk/sites/default/files/pub ... pe-pdfs/cwpe2546.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2546

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().