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The more we know, the less we agree: Higher-order expectations and public announcements

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  • Péter Kondor

    (Central European University)

Abstract

Polarization of opinions after public announcement is widely observed, but often considered to be inconsistent with Bayesian learning. I show that this is not the case in environments where higher-order expectations play a role. I characterize informational structures where public announcement leads to polarization in all higher-order expectations, but not in first-order expectations. To illustrate the economic consequences, I modify two workhorse models of asymmetric information. I show in a Morris-Shin(1998) model that more disclosure of public information can increase the chance of successful currency attacks. I show in a dynamic Grossman-Stiglitz(1980) model that hectic trading around public announcements is consistent with common priors and Bayesian learning.

Suggested Citation

  • Péter Kondor, 2009. "The more we know, the less we agree: Higher-order expectations and public announcements," 2009 Meeting Papers 1018, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:1018
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    File URL: https://economicdynamics.org/meetpapers/2009/paper_1018.pdf
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    References listed on IDEAS

    as
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