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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. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-47, November.
  2. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
  3. John Geanakoplos & Heracles M. Polemarchakis, 1982. "We Can't Disagree Forever," Cowles Foundation Discussion Papers 639, Cowles Foundation for Research in Economics, Yale University.
  4. Feinberg, Yossi, 2004. "Subjective Reasoning--Games with Unawareness," Research Papers 1875, Stanford University, Graduate School of Business.
  5. Dov Samet, 1997. "Common Priors and Separation of Convex Sets," Game Theory and Information 9701002, EconWPA.
  6. Giacomo Bonanno & Klaus Nehring, . "Fundamental Agreement: A New Foundation For The Harsanyi Doctrine," Department of Economics 96-02, California Davis - Department of Economics.
  7. Ng, Man-Chung, 2003. "On the duality between prior beliefs and trading demands," Journal of Economic Theory, Elsevier, vol. 109(1), pages 39-51, March.
  8. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer, vol. 52(1), pages 41-73, January.
  9. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
  10. Geanakoplos, John D. & Polemarchakis, Heraklis M., 1982. "We can't disagree forever," Journal of Economic Theory, Elsevier, vol. 28(1), pages 192-200, October.
  11. Oliver Board, 2006. "Object-Based Unawareness," Working Papers 245, University of Pittsburgh, Department of Economics, revised Jan 2006.
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Cited by:
  1. Aviad Heifetz & Martin Meier & Burkhard Schipper, 2011. "Unawareness, Beliefs, and Speculative Trade," Working Papers 118, University of California, Davis, Department of Economics.

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