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Trade and the value of information under unawareness

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  • Galanis, Spyros

Abstract

The value of information and the possibility of speculation are examined in an environment with unawareness. Although agents have “correct†prior beliefs about events they are aware of and have a clear understanding of their available actions and payoffs, their unawareness may lead them to commit information processing errors and to behave suboptimally. As a result, more information is not always valuable and agents can speculate with each other. We identify two specific information processing errors that are responsible for both problems. Moreover, we construct a dynamic model where agents announce their posteriors and update their awareness as soon as they hear a counterfactual announcement. We study how awareness is updated and whether agreement about posteriors is reached.

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File URL: http://eprints.soton.ac.uk/155621/4/1313%20combined.pdf
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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 1313.

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Date of creation: 20 Jun 2013
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Handle: RePEc:stn:sotoec:1313

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  1. Samet, Dov, 1998. "Common Priors and Separation of Convex Sets," Games and Economic Behavior, Elsevier, Elsevier, vol. 24(1-2), pages 172-174, July.
  2. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer, Springer, vol. 52(1), pages 41-73, January.
  3. Geanakoplos, John D. & Polemarchakis, Heraklis M., 1982. "We can't disagree forever," Journal of Economic Theory, Elsevier, Elsevier, vol. 28(1), pages 192-200, October.
  4. Oliver Board, 2006. "Object-Based Unawareness," Working Papers, University of Pittsburgh, Department of Economics 245, University of Pittsburgh, Department of Economics, revised Jan 2006.
  5. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, Econometric Society, vol. 62(6), pages 1327-47, November.
  6. Klaus Nehring & Giacomo Bonanno & Massimiliano Marcellino, 2003. "Fundamental Agreement: A new foundation for the Harsanyi Doctrine," Working Papers, University of California, Davis, Department of Economics 962, University of California, Davis, Department of Economics.
  7. Ng, Man-Chung, 2003. "On the duality between prior beliefs and trading demands," Journal of Economic Theory, Elsevier, Elsevier, vol. 109(1), pages 39-51, March.
  8. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, Elsevier, vol. 27(2), pages 265-298, May.
  9. Joseph Y. Halpern, 2000. "Alternative Semantics for Unawareness," Game Theory and Information, EconWPA 0004010, EconWPA.
  10. Feinberg, Yossi, 2004. "Subjective Reasoning--Games with Unawareness," Research Papers, Stanford University, Graduate School of Business 1875, Stanford University, Graduate School of Business.
  11. John Geanakoplos & Heracles M. Polemarchakis, 1982. "We Can't Disagree Forever," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 639, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2013. "Unawareness, beliefs, and speculative trade," Games and Economic Behavior, Elsevier, Elsevier, vol. 77(1), pages 100-121.
  2. Martin Meier & Burkhard Schipper, 2014. "Bayesian games with unawareness and unawareness perfection," Economic Theory, Springer, Springer, vol. 56(2), pages 219-249, June.
  3. Galanis, Spyros, 2007. "Unawareness of theorems," Discussion Paper Series In Economics And Econometrics, Economics Division, School of Social Sciences, University of Southampton 51816, Economics Division, School of Social Sciences, University of Southampton.
  4. Spyros Galanis, 2011. "Syntactic foundations for unawareness of theorems," Theory and Decision, Springer, Springer, vol. 71(4), pages 593-614, October.

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