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Trade and the value of information under unawareness

  • Galanis, Spyros

The value of information and the possibility of speculation are examined in an environment with unawareness. Although agents have “correct†prior beliefs about events they are aware of and have a clear understanding of their available actions and payoffs, their unawareness may lead them to commit information processing errors and to behave suboptimally. As a result, more information is not always valuable and agents can speculate with each other. We identify two specific information processing errors that are responsible for both problems. Moreover, we construct a dynamic model where agents announce their posteriors and update their awareness as soon as they hear a counterfactual announcement. We study how awareness is updated and whether agreement about posteriors is reached.

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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 1313.

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Date of creation: 20 Jun 2013
Date of revision:
Handle: RePEc:stn:sotoec:1313
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  1. Dov Samet, 1997. "Common Priors and Separation of Convex Sets," Game Theory and Information 9701002, EconWPA.
  2. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer, vol. 52(1), pages 41-73, January.
  3. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
  4. Kim-Sau Chung & Oliver Board, 2007. "Object-Based Unawareness," Working Papers 2007-2, University of Minnesota, Department of Economics, revised 24 Aug 2007.
  5. Giacomo Bonanno & Klaus Nehring, . "Fundamental Agreement: A New Foundation For The Harsanyi Doctrine," Department of Economics 96-02, California Davis - Department of Economics.
  6. Geanakoplos, John D. & Polemarchakis, Heraklis M., 1982. "We can't disagree forever," Journal of Economic Theory, Elsevier, vol. 28(1), pages 192-200, October.
  7. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
  8. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-47, November.
  9. Feinberg, Yossi, 2004. "Subjective Reasoning--Games with Unawareness," Research Papers 1875, Stanford University, Graduate School of Business.
  10. Ng, Man-Chung, 2003. "On the duality between prior beliefs and trading demands," Journal of Economic Theory, Elsevier, vol. 109(1), pages 39-51, March.
  11. John Geanakoplos & Heracles M. Polemarchakis, 1982. "We Can't Disagree Forever," Cowles Foundation Discussion Papers 639, Cowles Foundation for Research in Economics, Yale University.
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