The Transmission of Information through Prices: an Alternative Exploratory Assessment of Market Performance

Gabriel Desgranges, Pierre Geoffard and Roger Guesnerie ()

DELTA Working Papers from DELTA (Ecole normale supérieure)

Abstract: A simple model with asymmetric information, in which inventory holders or traders submit demand curves to an auctioneer, has a unique partially revealing equilibrium. We wonder whether the agents can plausibly coordinate on this equilibrium through "eductive" reasoning relying on Common Knowledge. The analysis stresses the role of two effects, "sensitivity" and "amplification", whose product should be small enough. The property obtains whenever the equilibrium excess demand is steep enough, i,e, when the search for information does not distort demand too much. Neither the influence of the number of informed agents nor that of "noise trading" are monotonic. Real time learning has strikingly different features.

Keywords: INFORMATION; DEMAND; MARKET (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:del:abcdef:2000-27

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