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Asymmetric Information, Non-Additive Expected Utility and the Information Revealed by Prices: A Simple Example

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  • Tallon, J.M.

Abstract

The author develops a simple example of a model in which agents have asymmetric information and preferences that are represented by a nonadditive expected utility function. The a priori uninformed agent, after observing the equilibrium price, has conditional beliefs that remain nonadditive. Then, even when the equilibrium price function is fully revealing (i.e., one-to-one), it may be worthwhile for an a priori uninformed agent to buy 'redundant' private information if he is more confident in that information than in that revealed by the price system. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Suggested Citation

  • Tallon, J.M., 1994. "Asymmetric Information, Non-Additive Expected Utility and the Information Revealed by Prices: A Simple Example," Papiers d'Economie Mathématique et Applications 94.27, Université Panthéon-Sorbonne (Paris 1).
  • Handle: RePEc:fth:pariem:94.27
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    Cited by:

    1. Antoine Billot & Sujoy Mukerji & Jean-Marc Tallon, 2020. "Market Allocations under Ambiguity: A Survey," Revue économique, Presses de Sciences-Po, vol. 71(2), pages 267-282.
    2. Illeditsch, PK & Ganguli, J & Condie, S, 2015. "Information Inertia," Economics Discussion Papers 15615, University of Essex, Department of Economics.
    3. Le Van, Cuong & Navrouzoglou, Paulina & Vailakis, Yiannis, 2019. "On endogenous formation of price expectations," Games and Economic Behavior, Elsevier, vol. 115(C), pages 436-458.
    4. repec:esx:essedp:719 is not listed on IDEAS
    5. Alberto Naudon & Matías Tapia & Felipe Zurita, 2004. "Ignorance, Fixed Costs, and the Stock-Market Participation Puzzle," Documentos de Trabajo 262, Instituto de Economia. Pontificia Universidad Católica de Chile..
    6. Jeleva, Meglena & Tallon, Jean-Marc, 2016. "Ambiguïté, comportements et marchés financiers," L'Actualité Economique, Société Canadienne de Science Economique, vol. 92(1-2), pages 351-383, Mars-Juin.
    7. repec:esx:essedp:770 is not listed on IDEAS
    8. Yu, Edison G., 2018. "Dynamic market participation and endogenous information aggregation," Journal of Economic Theory, Elsevier, vol. 175(C), pages 491-517.
    9. Condie, Scott & Ganguli, Jayant, 2017. "The pricing effects of ambiguous private information," Journal of Economic Theory, Elsevier, vol. 172(C), pages 512-557.
    10. Kostas Koufopoulos & Roman Kozhan, 2016. "Optimal insurance under adverse selection and ambiguity aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(4), pages 659-687, October.
    11. repec:esx:essedp:720 is not listed on IDEAS
    12. Mukerji, Sujoy & Tallon, Jean-Marc, 2004. "Ambiguity aversion and the absence of wage indexation," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 653-670, April.
    13. Scott Condie & Jayant V. Ganguli, 2011. "Ambiguity and Rational Expectations Equilibria," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 821-845.
    14. J L Ford & David Kelsey & W Pang, 2005. "Ambiguity in Financial Markets: Herding and Contrarian Behaviour," Discussion Papers 05-11, Department of Economics, University of Birmingham.
    15. Ganguli, J & Condie, S & Illeditsch, PK, 2012. "Information Inertia," Economics Discussion Papers 5628, University of Essex, Department of Economics.
    16. Scott Condie & Jayant Ganguli, 2011. "Informational efficiency with ambiguous information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 229-242, October.
    17. Ganguli, Jayant & Condie, Scott, 2012. "The pricing effects of ambiguous private information," Economics Discussion Papers 5631, University of Essex, Department of Economics.
    18. Rigotti, Luca & Shannon, Chris, 2012. "Sharing risk and ambiguity," Journal of Economic Theory, Elsevier, vol. 147(5), pages 2028-2039.

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    Keywords

    INFORMATION; PRICES;

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