Public and Private Learning from Prices, Strategic Substitutability and Complementarity, and Equilibrium Multiplicity

By C. Manzano, Xavier Vives. Social Science Research Network, 2011

141 citations recorded by the source corpus.

We study a general static noisy rational expectations model, where investors have private information about asset payoffs, with common and private components, and about their own exposure to an aggregate risk factor, and derive conditions for existence and uniqueness (or multiplicity) of equilibria. We find that a main driver of the characterization of equilibria is whether the actions of investors are strategic substitutes or complements. This latter property in turn is driven by the strength of a private learning channel from prices, arising from the multidimensional sources of asymmetric information, in relation to the usual public learning channel. When the private learning channel is strong (weak) in relation to the public we have strong (weak) strategic complementarity in actions and potentially multiple (unique) equilibria. The results enable a precise characterization of whether information acquisition decisions are strategic substitutes or complements. We find that the strategic substitutability in information acquisition result obtained in Grossman and Stiglitz (1980) is robust.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/38cec3f2134f93fd55ab92f5d88dbd8baec6be0a

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In Economics and Econometrics

1. A. Melé
2. Francesco Sangiorgi

In Finance

1. A. Melé
2. Francesco Sangiorgi

In Management Science and Operations Research

1. A. Melé
2. Francesco Sangiorgi

Citations in the corpus

• Uncertainty, Information Acquisition and Price Swings in Asset Markets (2015, background): “Finally, Ganguli and Yang (2009) and Manzano and Vives (2011) show the existence of multiple linear equilibria in the price function when agents have private information about both dividends and supply.”