IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/52143.html
   My bibliography  Save this paper

Limited Information Aggregation and Externalities - A Simple Model of Metastable Market

Author

Listed:
  • Gong, Zheng
  • Tian, Feng
  • Xu, Boyan

Abstract

We analyze a model in which agents’ decisions to enter or exit investments are influenced from their individual and external parties’ transaction histories. Actual investment outcomes are unknown to all participants until the end of decision periods, but outcomes do change depending on the number of participating players in the market and the market’s current state of condition. In this particular model, agents have access to external parties’ information from those who are within their specific social network. Our study of limited information aggregation mainly focuses on market responses to investors’ decisions of exiting the investment. With social structures complicating investment outcomes, we present a model that describes how markets can enter relatively stable statuses long enough for exiting participants to return, which brings the investment back to normal conditions. Our model also supports previous studies that limited information aggregation can cause the exogenous shock effect of global collapse.

Suggested Citation

  • Gong, Zheng & Tian, Feng & Xu, Boyan, 2013. "Limited Information Aggregation and Externalities - A Simple Model of Metastable Market," MPRA Paper 52143, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:52143
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/52143/1/MPRA_paper_52143.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Guarino, Antonio & Huck, Steffen & Jeitschko, Thomas D., 2006. "Averting economic collapse and the solipsism bias," Games and Economic Behavior, Elsevier, vol. 57(2), pages 264-285, November.
    2. Hikmet Gunay, 2008. "The role of externalities and information aggregation in market collapse," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(2), pages 367-379, May.
    3. Curtis R. Taylor & Thomas D. Jeitschko, 2001. "Local Discouragement and Global Collapse: A Theory of Coordination Avalanches," American Economic Review, American Economic Association, vol. 91(1), pages 208-224, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Information aggregation; Social structure; Internet Externality; Simulation;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:52143. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.