the relative contributions of private information sharing and public information releases to information aggregation we calculate learning rates when agents are informed through public and private observation of other agents actions we characterize the evolution of the distribution of posterior beliefs if the private learning channel is present convergence of the distribution of beliefs to the perfect information limit is exponential at a rate equal to the sum of the mean arrival rate of public information and the mean rate at which individual agents are randomly matched with other agents if however there is no private information sharing then convergence is exponential at a rate strictly lower than the mean arrival rate of public information c 2009 elsevier inc all rights reserved

the value of diffusing information abstract how does the speed by which information diffuses affect its value to a stock market investor in a structural model solved in closed form this speed has two opposing effects on the empirically dominant term of the value of information faster diffusing information means quicker and less noisy profits but also increases competing informed trading impounding more information into prices and eroding profits structural empirical analysis of stock market reaction to drug approvals using media coverage as a proxy for the transmission rate of information finds that the value of information is hump shaped in its future transmission rate moreover the estimated amount of noise trading is small

learning from private and public observations of othersʼ actions we study how a continuum of agents learn about disseminated information by observing others actions every period each agent observes a public and private noisy signal centered around the aggregate action taken by the population the public signal represents an endogenous aggregate variable such as a price or a quantity the private signal represents the information gathered through private communication and local interactions we identify conditions such that the average learning curve is s shaped learning is slow initially intensifies rapidly and finally converges slowly to the truth we show that increasing public information always slows down learning in the long run and under some conditions reduces welfare lastly optimal diffusion of information requires that agents strive to be different agents need to be rewarded for choosing actions away from the population average

libertarian paternalism information production and financial decision making we develop a theoretical model to analyze the effects of libertarian paternalism on information production and financial decision making individuals in our model appreciate the information content of the recommendations made by a social planner this affects their incentive to gather information and in turn the speed at which information spreads across market participants via social learning or formal advice channels we characterize situations in which libertarian paternalism improves welfare and contrast them with scenarios in which this policy is suboptimal because of its negative impact on the production and propagation of information the author 2013 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the loser s curse and information aggregation in common value auctions we consider an auction in which k identical objects of unknown value are auctioned off to n bidders the k highest bidders get an object and pay the k 1st bid bidders receive a signal that provides information about the value of the object we characterize the unique symmetric equilibrium of this auction we then consider a sequence of auctions a r with n r bidders and k r objects we show that price converges in probability to the true value of the object if and only if both k r and n r k r i e both the number of objects and the number of bidders who do not receive an object go to infinity

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

reprint of information percolation in segmented markets we study equilibria of dynamic over the counter markets in which agents are distinguished by their preferences and information over time agents are privately informed by bids and offers investors differ with respect to information quality including initial information precision and also in terms of market connectivity the expected frequency of their bilateral trading opportunities we characterize endogenous information acquisition and show how learning externalities affect information gathering incentives more liquid markets lead to higher equilibrium information acquisition when the gains from trade and market duration are sufficiently large on the other hand for a small market duration the opposite may occur if agents vary sufficiently in terms of their market connectivity c 2014 published by elsevier inc

price discovery in a matching and bargaining market with aggregate uncertainty abstract we introduce aggregate uncertainty into a rubinstein and wolinsky 1985 type dynamic matching and bilateral bargaining model the market can be either in a high state where there are more buyers than sellers or in a low state where there are more sellers than buyers traders do not know the state they randomly meet each other and bargain by making take it or leave it offers the only information transmitted in a meeting is the time a trader spent on the market there are two kinds of search frictions time discounting and exogenous exit we find that as the search frictions vanish the market discovers the competitive price quickly the prices offered in equilibrium converge in expectation to the true state walrasian price at the rate linear in the total search friction this rate is the same as it would be if the state were commonly known

toward a strategic foundation for rational expectations equilibrium a step toward a strategic foundation for rational expectations equilibrium is taken by considering a double auction with n buyers and m sellers with interdependent values and affiliated private information if there are sufficiently many buyers and sellers and their bids are restricted to a sufficiently fine discrete set of prices then generically there is an equilibrium in nondecreasing bidding functions that is arbitrarily close to the unique fully revealing rational expectations equilibrium of the limit market with unrestricted bids and a continuum of agents in particular the large double auction equilibrium is almost efficient and almost fully aggregates the agents information

screening peers softly inferring the quality of small borrowers this paper examines the performance of new online lending markets that rely on nonexpert individuals to screen their peers creditworthiness we find that these peer lenders predict an individual s likelihood of defaulting on a loan with 45 greater accuracy than the borrower s exact credit score unobserved by the lenders who only see a credit category moreover peer lenders achieve 87 of the predictive power of an econometrician who observes all standard financial information about borrowers screening through soft or nonstandard information is relatively more important when evaluating lower quality borrowers our results highlight how aggregating over the views of peers and leveraging nonstandard information can enhance lending efficiency this paper was accepted by amit seru finance

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

learning and price discovery in a search market we introduce learning into an otherwise standard two sided search and bargaining market there is uncertainty about the price distribution due to uncertainty about an underlying exogenous state of relative demand in the high state buyers are on the long side otherwise they are on the short side in equilibrium prices are on average higher in the high state individual agents learn about the distribution while searching agents typically start out by experimenting with a tough bargaining position buyers may initially insist on a low price and sellers on a high price after successive failures to trade agents become increasingly pessimistic about the market conditions and soften their bargaining stance when frictions are small equilibrium transaction prices are approximately market clearing despite aggregate demand being unknown thus the search and bargaining procedure enables price discovery in a decentralized market

foreign aid and public goods abstract most less developed countries ldcs use foreign economic aid to finance public consumption goods or public intermediate inputs this paper constructs a two country general equilibrium trade model where an income transfer that takes place between the two countries is used by the recipient to finance a public consumption good within this framework the paper identifies the conditions under which the income transfer improves or deteriorates the donor country s terms of trade and shows that the transfer can be welfare enriching for the donor and welfare immiserizing for the recipient country the paper also demonstrates that the transfer can raise reduce world welfare in which case a welfare increase decrease in both the donor and the recipient country is possible

search with adverse selection this paper analyzes a sequential search model with adverse selection we study information aggregation by the price how close the equilibrium prices are to the full information prices when search frictions are small we identify circumstances under which prices fail to aggregate information well even when search frictions are small we trace this to a strong form of the winner s curse that is present in the sequential search model the failure of information aggregation may result in inefficient allocations

national innovation systems and the intermediary role of industry associations in building institutional capacities for innovation in developing countries a critical review of the literature abstract developed over the past three decades the national innovation system concept nis has been widely used by both scholars and policy makers to explain how interactions between a set of distinct nationally bounded institutions supports and facilitates technological change and the emergence and diffusion of new innovations this concept provides a framework by which developing countries can adopt for purposes of catching up initially conceived on structures and interactions identified in economically advanced countries the application of the nis concept to developing countries has been gradual and has coincided in the nis literature with a move away from overly macro interpretations to an emphasis on micro level interactions and processes with much of this work questioning the nation state as the most appropriate level of analysis as well as the emergence of certain intermediary actors thought to facilitate knowledge exchange between actors and institutions this paper reviews the nis literature chronologically showing how this shift in emphasis has diminished somewhat the importance of both institutions particularly governments and the political processes of institutional capacity building in doing so the paper suggests that more recent literature on intermediaries such as industry associations may offer valuable insights to how institutional capacity building occurs and how it might be directed particularly in the context of developing countries where governance capacities are often lacking contributing to less effective innovation systems stagnant economies and unequal development

a decentralized market with common values uncertainty non steady states we analyse a market where i trade proceeds by random and anonymous pairwise meetings with bargaining ii agents are asymmetrically informed about the value of the traded good and iii no new entrants are allowed once the market is open we show that information revelation and efficiency never obtain in equilibrium even as discounting is removed this holds whether the asymmetry is two sided or one sided in some cases there exist equilibria where a substantial amount goes untraded this contrasts with the earlier literature which was based on the steadystate equilibria of a model where agents enter the market every period

information revelation in a market with pairwise meetings the paper presents a simple pairwise meetings model of trade the new feature is that agents have asymmetric information about the true state of the world the focus is on the transmission of the information through the process of trade the qualitative question is to what extent is the information revealed to uninformed agents through the trading process when the market is in some sense frictionless in particular does the decentralized process give rise to full revelation results as derived by the literature on rational expectations for centralized and competitive environments in the context of the model of this paper it turns out that the information is not fully revealed to uninformed agents even when the market is in some sense approximately frictionless

an introduction to the theory of rational expectations under asymmetric information every good economics textbook contains the cliche that market prices provide signals which facilitate the allocation of resources to their best use in a world not subject to random shocks consumers and producers when faced with competitive prices need look no further than their own preferences or production technology to be able to make a decision they need give no thought to the tastes endowments or technology of other agents however in a world subject to random shocks this is no longer the case agents are faced with the problem of forecasting future states of nature and more importantly of forecasting the impact of these states on the actions of other agents rational expectations theories provide a model of how agents make those forecasts in a world subject to random shocks it will be the case that agents acquire or at least attempt to acquire information about the future realization of the shocks it will in general be the case that different agents have access to different information the fact that information is dispersed throughout the economy has the potential to cause a misallocation of resources relative to what would be the case if all agents knew everything an efficient allocation of resources will in general require the transfer of information from consumers who have some information about their future demands to producers who can take current actions to mitigate avoidable scarcities or surpluses though many classical and neo classical writers emphasize the informational role of prices the standard marshallian or walrasian model of competitive equilibrium does not involve prices transferring information across traders the purpose of this paper is to show that rational expectations models are radically different from walrasian models in an economy where traders have diverse information this is demonstrated by showing that unlike what occurs in a walrasian equilibrium of an economy with heterogeneous information if there is a complete set of insurance markets and utility is additively separable over time then there exists a rational expectations equilibrium which gives consumers the same allocation as if each consumer has access to all of the economy s information this implies that under the above assumptions a central planner with all the economy s information could not pareto dominate the competitive allocation achieved when traders have diverse information and rational expectations this paper makes no attempt to survey the literature on rational expectations the reader is referred to shiller 1978 barro 1981 for a survey of macroeconomics and rational expectations and radner 1980 for a survey of the microeconomics and mathematical theory of rational expectations this paper will however try to outline the evolution of the rational expectations concept from a notion of optimal forecasting to a virtually complete departure from the walrasian model of equilibrium the rest of this section is devoted to a discussion of pre rational expectations ideas

information percolation momentum and reversal abstract we propose a joint theory of time series momentum and reversal based on a rational expectations model we show that a necessary condition for momentum to arise in this framework is that information flows at an increasing rate we focus on word of mouth communication as a mechanism that enforces this condition and generates short term momentum and long term reversal investors with heterogeneous trading strategies contrarian and momentum traders coexist in the marketplace although a significant proportion of investors are momentum traders momentum is not completely eliminated word of mouth communication spreads rumors and generates price run ups and reversals our theoretical predictions are in line with empirical findings

information percolation in large markets we introduce a simple model of the percolation of information of common interest through a large market as agents encounter each other over time and reveal information to each other some of which they may have received earlier from other agents we are particularly interested in the evolution over time of the cross sectional distribution in the population of the posterior probability assignments of the various agents we provide a market example based on privately held auctions and obtain a relatively explicit solution for the cross sectional distribution of posterior beliefs at each time our results contribute to the literature on information transmission in markets hayek 1945 argues that markets allow information that is dispersed in a population to be revealed through prices grossman s 1981 notion of a rational expectations equilibrium formalizes this idea in a setting with price taking agents milgrom 1981 pesendorfer and swinkels 1997 and reny and perry 2006 provide strategic foundations for the rational expectations equilibrium concept in centralized markets a number of important markets however are decentralized these include over the counter markets and private auction markets wolinsky 1990 and blouin and serrano 2002 study information transmission in decentralized markets in contrast to these two papers equilibrium behavior in our market example leads to full revelation of information we happily acknowledge conversations with manuel amador frank kelly jeremy stein and pierre olivier weill and research assistance from sergey lobanov rubinstein and wolinsky 1985 and gale 1986a 1986b study decentralized markets without asymmetric information satterthwaite and shneyerov 2003 study decentralized market with private value asymmetric information amador and weill 2006 study a more abstract setting regarding transmission of common and private i nformation

decentralized trading with private information the paper studies how asset prices are determined in a decentralized market with asymmetric information about asset values we consider an economy in which a large number of agents trade two assets in bilateral meetings a fraction of the agents has private information about the asset values we show that over time uninformed agents can elicit information from their trading partners by making small offers this form of experimentation allows the uninformed agents to acquire information as long as there are potential gains from trade in the economy as a consequence the economy converges to a pareto efficient allocation

follies subdued informational efficiency under adaptive expectations and confirmatory bias abstract we study the informational efficiency of a market with a single traded asset the price initially differs from the fundamental value about which the agents have noisy private information which is on average correct a fraction of traders revise their price expectations in each period the price at which the asset is traded is public information the agents expectations have an adaptive component and a social interactions component with confirmatory bias we show that taken separately each of the deviations from rationality worsens the informational efficiency of the market however when the two biases are combined the degree of informational inefficiency of the market measured as the deviation of the long run market price from the fundamental value of the asset can be non monotonic both in the weight of the adaptive component and in the degree of confirmatory bias for some ranges of parameters two biases tend to mitigate each other s effect thus increasing informational efficiency

experiments on percolation of information in dark markets in dark markets order submissions are bilateral and transaction prices are known only to the trading counterparties here we study to what extent the information aggregation theory proposed by duffie and collaborators predicts outcomes in a laboratory version of such markets we find that prices aggregate the available information but not in the strict sense of the theory where prices converge exponentially fast to average private signals prices instead fluctuate within bands around this average the band widths reflect in the best case the precision of the average signal and otherwise the precision of a single private signal