Information Aggregation Under Ambiguity: Theory and Experimental Evidence
27 January 2022 @ 3:00 pm - 5:00 pm
Online Research Seminar
3:00 pm, Thursday, 27 January 2022
We study information aggregation in a dynamic trading model. We show theoretically that separable securities, introduced by Ostrovsky (2012) 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 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 theoretical 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.
About the speaker
Spyros Galanis is a Professor of Economics at the Durham University Business School. Prior to that, he was Associate Professor (Reader) and Head of the Department of Economics of City, University of London. Between 2007-2018, he was first a Lecturer and then an Associate Professor at the Department of Economics of the University of Southampton. He received his PhD from the University of Rochester, his MSc from the University of Warwick and his BSc from the Athens University of Economics and Business, all in Economics. His research interests include decision theory, game theory, experiments and finance.