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The University of Southampton
EconomicsPart of Economic, Social and Political Science

1313 Trade and the Value of Information Under Unawareness (S. Galanis)

Author: Spyros Galanis (University of Southampton)

Paper number 1313

The value of information and the possibility of speculation are examined in an environment with unawareness. Although agents have 'correct' prior knowledge about events they are aware of and have a clear understanding of their available actions and payoffs, their unawareness may lead them to commit information processing errors and to behave suboptimally. As a result, more information is not always valuable and agents can speculate with each other. We identify two specific information processing errors that are responsible for both problems. Moreover, we construct a dynamic model where agents announce their posteriors and update their awareness as soon as they hear a counterfactual announcement. We study how awareness is updated and whether agreement about posteriors is reached.

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