Market Selection, Frictions, and the Information Content of Prices
Start Date and End Date
30 April 2021
Project Web Page
Prices provide incentives which guide production, investment and consumption decisions. Since these decisions determine the allocation of resources, prices that accurately reflect preferences and beliefs are integral for economic efficiency. INFORMATIVEPRICES project aims to understand how new information is impounded into prices in large markets, which markets produce prices that more accurately reflect current beliefs and where better-informed bidders trade. Such questions are addressed within a game-theoretical auction model where individuals can self-select across multiple markets which are heterogeneous in terms of institutional detail. Some questions that the project would like to investigate includes:
- How do market frictions affect information aggregation if bidders can strategically choose between markets?
- What are the mechanisms through which market imperfections disrupt information aggregation?
- Which market’s price is a better statistic for market participants’ information?
- Which market attracts better-informed bidders?
- Do prices aggregate beliefs more accurately in good times?
Initial findings suggest that the proposed framework can be really fruitful in addressing these questions.