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Asymmetric Information, Nonadditive Expected Utility, and the Information Revealed by Prices: An Example

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  • Tallon, Jean-Marc

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.

Suggested Citation

  • Tallon, Jean-Marc, 1998. "Asymmetric Information, Nonadditive Expected Utility, and the Information Revealed by Prices: An Example," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 329-342, May.
  • Handle: RePEc:ier:iecrev:v:39:y:1998:i:2:p:329-42
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    Cited by:

    1. Scott Condie & Jayant V. Ganguli, 2011. "Ambiguity and Rational Expectations Equilibria," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 821-845.
    2. Meglena Jeleva & Jean-Marc Tallon, 2016. "Ambiguïté, comportements et marchés financiers," Post-Print halshs-01109639, HAL.
    3. Illeditsch, PK & Ganguli, J & Condie, S, 2017. "Information Inertia (Working Paper)," Economics Discussion Papers 15615, University of Essex, Department of Economics.
    4. repec:esx:essedp:719 is not listed on IDEAS
    5. J L Ford, David Kelsey and W Pang, 2005. "Ambiguity in Financial Markets: Herding and Contrarian Behaviour," Discussion Papers 05-11, Department of Economics, University of Birmingham.
    6. 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..
    7. 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.
    8. Ganguli, J & Condie, S & Illeditsch, PK, 2012. "Information Inertia," Economics Discussion Papers 5628, University of Essex, Department of Economics.
    9. repec:esx:essedp:770 is not listed on IDEAS
    10. : Kostas Koufopoulos & : Roman Kozhan, 2012. "Optimal Insurance under Advserse Selection and Ambiguity Aversion," Working Papers wpn12-07, Warwick Business School, Finance Group.
    11. Yu, Edison G., 2018. "Dynamic market participation and endogenous information aggregation," Journal of Economic Theory, Elsevier, vol. 175(C), pages 491-517.
    12. repec:eee:jetheo:v:172:y:2017:i:c:p:512-557 is not listed on IDEAS
    13. 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.
    14. 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.
    15. Ganguli, Jayant & Condie, Scott, 2012. "The pricing effects of ambiguous private information," Economics Discussion Papers 5631, University of Essex, Department of Economics.
    16. 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.
    17. Rigotti, Luca & Shannon, Chris, 2012. "Sharing risk and ambiguity," Journal of Economic Theory, Elsevier, vol. 147(5), pages 2028-2039.
    18. repec:esx:essedp:720 is not listed on IDEAS

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