Updating Awareness and Information Aggregation
Spyros Galanis () and
Working Papers from Department of Economics, City University London
The ability of markets to aggregate information through prices is examined in a dynamic environment with unawareness. We find that if all traders are able to minimally update their awareness when they observe a price that is counterfactual to their private information, they will eventually reach an agreement, thus generalising the result of Geanakoplos and Polemarchakis . Moreover, if the traded security is separable, then agreement is on the correct price and there is information aggregation, thus gen- eralizing the result of Ostrovsky  for non-strategic traders. We find that a trader increases her awareness if and only if she is able to become aware of something that other traders are already aware of and, under a mild condition, never becomes aware of anything more. In other words, agreement is more the result of understanding each other, rather than being unboundedly sophisticated.
Keywords: Agreement; InformationAggregation; Unawareness; FinancialMarkets; InformationMarkets; PredictionMarkets (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:cty:dpaper:19/03
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