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Information Validates the Prior: A Theorem on Bayesian Updating and Applications

Author

Listed:
  • Navin Kartik
  • Frances Xu Lee
  • Wing Suen

Abstract

We develop a result on expected posteriors for Bayesians with heterogenous priors, dubbed information validates the prior (IVP). Under familiar ordering requirements, Anne expects a (Blackwell) more informative experiment to bring Bob's posterior mean closer to Anne's prior mean. We apply the result in two contexts of games of asymmetric information: voluntary testing or certification, and costly signaling or falsification. IVP can be used to determine how an agent's behavior responds to additional exogenous or endogenous information. We discuss economic implications.

Suggested Citation

  • Navin Kartik & Frances Xu Lee & Wing Suen, 2021. "Information Validates the Prior: A Theorem on Bayesian Updating and Applications," American Economic Review: Insights, American Economic Association, vol. 3(2), pages 165-182, June.
    • Handle: RePEc:aea:aerins:v:3:y:2021:i:2:p:165-82
    DOI: 10.1257/aeri.20200284
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    Cited by:

    1. Onuchic, Paula & Ray, Debraj, 2023. "Conveying value via categories," Theoretical Economics, Econometric Society, vol. 18(4), November.
    2. Chang, Dongkyu & Vong, Allen, 2021. "Perverse Ethical Concerns: Online Platforms and Offline Conflicts," MPRA Paper 110507, University Library of Munich, Germany.
    3. Daniel Habermacher & Nicolás Riquelme, 2025. "Diversity and Empowerment in Organizations," Working Papers 352, Red Nacional de Investigadores en Economía (RedNIE).
    4. Christopher S. Armstrong & Mirko S. Heinle & Irina Luneva, 2024. "Financial information and diverging beliefs," Review of Accounting Studies, Springer, vol. 29(3), pages 2082-2124, September.
    5. Vladimír Novák & Andrei Matveenko & Silvio Ravaioli, 2024. "The Status Quo and Belief Polarization of Inattentive Agents: Theory and Experiment," American Economic Journal: Microeconomics, American Economic Association, vol. 16(4), pages 1-39, November.
    6. Vaccari, Federico, 2023. "Competition in costly talk," Journal of Economic Theory, Elsevier, vol. 213(C).
    7. Giampaolo Bonomi, 2023. "The Disagreement Dividend," Papers 2308.06607, arXiv.org, revised Jul 2024.
    8. Chang, Dongkyu & Vong, Allen, 2025. "Perverse ethical concerns: Misinformation and coordination," Journal of Economic Theory, Elsevier, vol. 226(C).

    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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