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Asymmetric information in a competitive market game: Reexamining the implications of rational expectations

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  • James Peck

    ()
    (Department of Economics, The Ohio State University, 1945 N. High Street, Columbus, OH 43210-1172, USA)

  • Matthew O. Jackson

    ()
    (Division of Humanities and Social Sciences 228-77, Caltech, Pasadena, CA 91125, USA)

Abstract

We examine price formation in a simple static model with asymmetric information, an infinite number of risk neutral traders and no noise traders. Here we re-examine four results associated with rational expectations models relating to the existence of fully revealing equilibrium prices, the advantage of becoming informed, the costly acquisition of information, and the impossibility of having equilibrium prices with higher volatility than the underlying fundamentals.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 13 (1999)
Issue (Month): 3 ()
Pages: 603-628

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Handle: RePEc:spr:joecth:v:13:y:1999:i:3:p:603-628

Note: Received: August 27, 1997; revised version: February 11, 1998
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Related research

Keywords: Market game Excess volatility · Rational expectations · Asymmetric information · Information acquisition. ·;

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References

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Citations

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Cited by:
  1. Levin, Dan & Peck, James & Ye, Lixin, 2007. "Bad news can be good news: Early dropouts in an English auction with multi-dimensional signals," Economics Letters, Elsevier, vol. 95(3), pages 462-467, June.
  2. Muendler, Marc-Andreas, 2008. "Risk-neutral investors do not acquire information," Finance Research Letters, Elsevier, vol. 5(3), pages 156-161, September.
  3. Meirowitz, Adam, 2005. "Deliberative Democracy or Market Democracy: Designing Institutions to Aggregate Preferences and Information," Papers 03-28-2005, Princeton University, Research Program in Political Economy.
  4. Muendler, Marc-Andreas, 2007. "The possibility of informationally efficient markets," Journal of Economic Theory, Elsevier, vol. 133(1), pages 467-483, March.
  5. Christopher Chambers & Paul Healy, 2012. "Updating toward the signal," Economic Theory, Springer, vol. 50(3), pages 765-786, August.
  6. Riekhof, Hans-Christian & Riekhof, Marie-Catherine & Brinkhoff, Stefan, 2012. "Predictive Markets: Ein vielversprechender Weg zur Verbesserung der Prognosequalität im Unternehmen?," PFH Forschungspapiere/Research Papers 2012/07, PFH Private University of Applied Sciences, Göttingen.
  7. Bond, Philip & Eraslan, Hülya, 2010. "Information-based trade," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1675-1703, September.
  8. Jamsheed Shorish, 2010. "Functional rational expectations equilibria in market games," Economic Theory, Springer, vol. 43(3), pages 351-376, June.
  9. Muendler, Marc-Andreas, 2005. "Risk Neutral Investors Do Not Acquire Information¤," University of California at San Diego, Economics Working Paper Series qt8fg5g853, Department of Economics, UC San Diego.
  10. Richard McLean & James Peck & Andrew Postlewaite, 2004. "On Price-Taking Behavior in Asymmetric Information Economies," PIER Working Paper Archive 04-040, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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