Information Percolation

Gustavo Manso, Gaston Giroux and Darrell Duffie
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Gustavo Manso: Massachusetts Institute of Technology
Gaston Giroux: Unaffiliated

No 471, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: We study information percolation in a stylized over-the-counter market in which a large set of asymmetrically informed investors meet in small groups over time, exchanging information with their counterparties when matched, through for example their bids for an asset. We provide an explicit solution for the dynamic evolution of the cross-sectional distribution of posterior beliefs regarding the asset payoff. We calculate the rate of convergence of the cross-sectional distribution of beliefs to a common posterior. We show that this convergence rate does not depend on the size of the groups of investors that meet. The convergence rate is merely the mean aggregate meeting rate of the investor population.

Date: 2008
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Journal Article: Information Percolation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed008:471

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