How Fast Do Rational Agents Learn?

A simple dynamic model of rational learning through market interaction by asymmetrically informed risk-neutral agents, uncertain about a valuation parameter but whose pooled information reveals it, is presented. The model is a variation of the classical partial equilibrium model of learning in rational expectations in which the market price is informative about the unknown parameter only through the actions of agents. It is found that learning from market prices and convergence to the rational expectations equilibrium is slow, at the rate l divided by [the square root of n to the l/3] (where n is the number periods of market interaction), whenever the average precision of private information in the market is finite. Copyright 1993 by The Review of Economic Studies Limited.