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Updating Awareness and Information Aggregation

Author

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  • Galanis Spyros

    (Department of Economics, City, University of London, London, UK)

  • Kotronis Stelios

    (Department of Economics, City, University of London, London, UK)

Abstract

The ability of markets to aggregate information through prices is examined in a dynamic environment with unawareness. We find that if all traders are able to minimally update their awareness when they observe a price that is counterfactual to their private information, they will eventually reach an agreement, thus generalising the result of Geanakoplos and Polemarchakis (1982). Moreover, if the traded security is separable, then agreement is on the correct price and there is information aggregation, thus generalizing the result of Ostrovsky (2012) for non-strategic traders. We find that a trader increases her awareness if and only if she is able to become aware of something that other traders are already aware of and, under a mild condition, never becomes aware of anything more. In other words, agreement is more the result of understanding each other, rather than being unboundedly sophisticated.

Suggested Citation

  • Galanis Spyros & Kotronis Stelios, 2021. "Updating Awareness and Information Aggregation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 21(2), pages 613-635, June.
    • Handle: RePEc:bpj:bejtec:v:21:y:2021:i:2:p:613-635:n:11
    DOI: 10.1515/bejte-2018-0193
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    Cited by:

    1. Galanis, S. & Ioannou, C. & Kotronis, S., 2019. "Information Aggregation Under Ambiguity: Theory and Experimental Evidence," Working Papers 20/05, Department of Economics, City University London.

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    More about this item

    Keywords

    agreement; information aggregation; unawareness; financial markets; information markets; prediction markets;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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