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Updating Awareness and Information Aggregation

Galanis, S. ORCID: 0000-0003-4286-7449 & Kotronis, S. (2020). Updating Awareness and Information Aggregation. The B.E. Journal of Theoretical Economics, doi: 10.1515/bejte-2018-0193

Abstract

The ability of markets to aggregate information through prices is examined in a dy- namic 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 [1982]. 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 [2012] 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.

Publication Type: Article
Publisher Keywords: Agreement, Information Aggregation, Unawareness, Financial Markets, Information Markets, Prediction Markets.
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Departments: School of Arts & Social Sciences > Economics
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