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Disagreement, information and welfare

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  • Jernej Copic

    (UCLA)

Abstract

In a stylized strategic situation, two individuals form consistent (self-confirming) assessments as classical statisticians. In equilibrium, where individuals are rational and sophisticated, there are two outcomes: (i) disagreement bears no idiosyncratic risks, minimizes aggregate welfare, individuals cannot recover the truth, and may hold different assessments; (ii) agreement is robust, maximizes welfare, and assessments coincide with the truth. A subjective Pareto criterion compares outcomes based on assessments that players may hold. Whereas agreement is Pareto efficient, disagreement subjectively Pareto- dominates agreement. Under equilibrium assessments, individuals disagree on redistribution. The example relates to 'agreeing to disagree' (Aumann 1976), trade and information (Milgrom and Stokey 1982), and a toy macroeconomic example.

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  • Jernej Copic, 2015. "Disagreement, information and welfare," 2015 Meeting Papers 1344, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1344
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