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Informational efficiency with ambiguous information

Abstract

This paper proves the existence of fully revealing rational expectations equilibria for almost all sets of beliefs when investors are ambiguity averse and have preferences that are characterized by Choquet expected utility with a convex capacity. The result implies that strong-form efficient equilibrium prices exist even when many investors in the market make use of information in a way that is substantially different from traditional models of financial markets.

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Correspondence to Scott Condie.

Additional information

We are grateful to Alain Chateauneuf, Ani Guerdjikova, Paolo Siconolfi and Jean-Marc Tallon for helpful comments. We are particularly grateful to an anonymous referee as well as Mark Machina, Klaus Ritzberger, and Nicholas Yannelis as editors of this special issue in honor of Daniel Ellsberg. Finally, we are grateful to Larry Blume and David Easley for advice and suggestions. We also thank several seminar and conference audiences for helpful discussion. Condie acknowledges support from the Solomon Fund for Decision Research at Cornell University.

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Condie, S., Ganguli, J.V. Informational efficiency with ambiguous information. Econ Theory 48, 229–242 (2011). https://doi.org/10.1007/s00199-011-0646-2

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  • DOI: https://doi.org/10.1007/s00199-011-0646-2

Keywords

  • Efficient markets
  • Ambiguity
  • Rational expectations equilibrium

JEL Classification

  • D53
  • D81
  • D82
  • G14