The more we know, the less we agree: Higher-order expectations and public announcements
Polarization of opinions after public announcement is widely observed, but often considered to be inconsistent with Bayesian learning. I show that this is not the case in environments where higher-order expectations play a role. I characterize informational structures where public announcement leads to polarization in all higher-order expectations, but not in first-order expectations. To illustrate the economic consequences, I modify two workhorse models of asymmetric information. I show in a Morris-Shin(1998) model that more disclosure of public information can increase the chance of successful currency attacks. I show in a dynamic Grossman-Stiglitz(1980) model that hectic trading around public announcements is consistent with common priors and Bayesian learning.
Year of publication: |
2009
|
---|---|
Authors: | Kondor, Péter |
Institutions: | Society for Economic Dynamics - SED |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Kondor, Péter, (2011)
-
Kondor, Péter, (2015)
-
Risk in dynamic arbitrage: Price effects of convergence trading
Kondor, Péter, (2006)
- More ...