Professor Spyros Galanis spyros.galanis@durham.ac.uk
Professor
Information Aggregation Under Ambiguity: Theory and Experimental Evidence
Galanis, Spyros; Ioannou, Christos A.; Kotronis, Stelios
Authors
Christos A. Ioannou
Stelios Kotronis
Abstract
We study information aggregation in a dynamic trading model. We show theoretically that separable securities, introduced by Ostrovsky in the context of Expected Utility, no longer aggregate information if some traders have imprecise beliefs and are ambiguity averse. Moreover, these securities are prone to manipulation as the degree of information aggregation can be influenced by the initial price set by the uninformed market maker. These observations are also confirmed in our laboratory experiment using prediction markets. We define a new class of strongly separable securities, which are robust to the above considerations and show that they characterize information aggregation in both strategic and non-strategic environments. We derive several testable predictions, which we are able to confirm in the laboratory. Finally, we show theoretically that strongly separable securities are both sufficient and necessary for information aggregation but, strikingly, there does not exist a security that is strongly separable for all information structures.
Citation
Galanis, S., Ioannou, C. A., & Kotronis, S. (2024). Information Aggregation Under Ambiguity: Theory and Experimental Evidence. The Review of Economic Studies, https://doi.org/10.1093/restud/rdae009
Journal Article Type | Article |
---|---|
Acceptance Date | Jan 16, 2024 |
Online Publication Date | Jan 24, 2024 |
Publication Date | Jan 24, 2024 |
Deposit Date | Sep 25, 2023 |
Publicly Available Date | May 22, 2024 |
Journal | The Review of Economic Studies |
Print ISSN | 0034-6527 |
Electronic ISSN | 1467-937X |
Publisher | Oxford University Press |
Peer Reviewed | Peer Reviewed |
DOI | https://doi.org/10.1093/restud/rdae009 |
Public URL | https://durham-repository.worktribe.com/output/1748188 |
Files
Published Journal Article (Advance Online Version)
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Publisher Licence URL
http://creativecommons.org/licenses/by/4.0/
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