Belief Aggregation under Costly Information

This paper proposes an epistemic foundation for aggregating sets of probabilistic beliefs by retaining only shared beliefs. It develops a model of belief formation under information-acquisition costs and capacity constraints. In this model, different information technologies rationalize different belief-aggregation rules, such as the familiar linear, geometric, power, and multiplicative pooling. Since the ranking of uncertain policies depends on these aggregation rules, failing to base collective beliefs on the underlying technologies can cause welfare losses. An application to financial markets demonstrates how these technologies translate conflicting beliefs into equilibrium prices.