The Transmission of Information through Prices : an Alternative Exploratory Assessment of Market Performance
AbstractA 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.
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Bibliographic InfoPaper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2000-27.
Length: 46 pages
Date of creation: 2000
Date of revision:
INFORMATION ; DEMAND ; MARKET;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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