Updating Awareness and Information Aggregation

B.E. Journal of Theoretical Economics

21 Pages Posted: 6 Jan 2019 Last revised: 2 Oct 2020

Date Written: May 14, 2020

Abstract

The ability of markets to aggregate information through prices is examined in a dynamic environment with unawareness. We find that if all traders are able to minimally update their awareness when they observe a price that is counterfactual to their private information, they will eventually reach an agreement, thus generalising the result of Geanakoplos and Polemarchakis [1982]. Moreover, if the traded security is separable, then agreement is on the correct price and there is information aggregation, thus generalizing the result of Ostrovsky [2012] for non-strategic traders. We find that a trader increases her awareness if and only if she is able to become aware of something that other traders are already aware of and, under a mild condition, never becomes aware of anything more. In other words, agreement is more the result of understanding each other, rather than being unboundedly sophisticated.

Keywords: Agreement, Information Aggregation, Unawareness, Financial Markets, Information Markets, Prediction Markets

JEL Classification: D80, D82, D83, D84, G14, G41

Suggested Citation

Galanis, Spyros and Kotronis, Stelios, Updating Awareness and Information Aggregation (May 14, 2020). B.E. Journal of Theoretical Economics, Available at SSRN: https://ssrn.com/abstract=3305415 or http://dx.doi.org/10.2139/ssrn.3305415

Spyros Galanis (Contact Author)

Durham University ( email )

Durham, DH1 3LE
Great Britain

Stelios Kotronis

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
67
Abstract Views
865
Rank
686,546
PlumX Metrics