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Good Nevs and Bad News: Representation Theorems and Applications

  • Paul R. Milgrom

This is an article about modeling methods in information economics. A notion of "favorableness" of news is introduced, characterized, and applied to four simple models. In the equilibria of these models, (1) the arrival of good news about a firm's prospects always causes its share price to rise, (2) more favorable evidence about an agent's effort leads the principal to pay a larger bonus, (3) buyers expect that any product information withheld by a salesman is unfavorable to his product, and (4) bidders figure that low bids by their competitors signal a low value for the object being sold.

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File URL: http://www.kellogg.northwestern.edu/research/math/papers/407.pdf
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 407R.

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Date of creation: Nov 1979
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Handle: RePEc:nwu:cmsems:407r
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