Limited Information Aggregation and Externalities - A Simple Model of Metastable Market
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.
|Date of creation:||04 Dec 2013|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- 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.
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)
If references are entirely missing, you can add them using this form.