Ex post regret and the decentralized sharing of information. (English) Zbl 0926.91010
Summary: Firms reveal private information about the value of investment through their investment decisions. As a consequence they may have ex post regret once they see other firms’ investments. We define a notion of rational expectations equilibrium for games which imposes a “no-regret” property. In this equilibrium, all firms make the same investment decision, but despite the absence of ex post regret, the investment herd can be inefficient. In addition equilibrium might not exist. We introduce a notion of probabilistic existence, and identify conditions under which, if the number of firms is large, enough information comes out so that investment herds are firstbest efficient with high probability, and equilibrium exists with high probability.
MSC:
| 91B06 | Decision theory |
References:
| [1] | Allen, B., Strict Rational Expectations Equilibria with Diffuseness, J. Econ. Theory, 27, 20-46 (1982) · Zbl 0507.90011 |
| [2] | Anderson, R.; Sonnenschein, H., On the Existence of Rational Expectations Equilibrium, J. Econ. Theory, 26, 261-278 (1982) · Zbl 0485.90023 |
| [3] | Aumann, R., Agreeing to Disagree, The Annals of Statistics, 4, 1236-1239 (1976) · Zbl 0379.62003 |
| [4] | Austin, D. H. 1993, The Determinants of patent value and rivalry effects in an imperfectly competitive industry: The case of biotechnology, University of California at Berkeley; Austin, D. H. 1993, The Determinants of patent value and rivalry effects in an imperfectly competitive industry: The case of biotechnology, University of California at Berkeley |
| [5] | Austin, D. H. 1996, Estimating Patent Value and Rivalry Effects: An Event Study of Biotechnology Patents, Resources for the Future; Austin, D. H. 1996, Estimating Patent Value and Rivalry Effects: An Event Study of Biotechnology Patents, Resources for the Future |
| [6] | Banerjee, A. V., A Simple Model of Herd Behavior, Quarterly Journal of Economics, 107, 797-817 (1992) |
| [7] | Bhattacharya, G.; Simons, G., Informational Cascades in Informal Markets, J. Econ.-(MVEA), 22, 47-55 (1996) |
| [8] | Bikhchandani, S.; Hirshleifer, D.; Welch, I., A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades, J. Pol. Econ., 100, 992-1026 (1992) |
| [9] | Bray, M., Rational Expectations, Information and Asset Markets: An Introduction, Oxford Econ. Papers, 37, 161-195 (1985) |
| [10] | Chamley, C.; Gale, D., Information Revelation and Strategic Delay in a Model of Investment, Econometrica, 62, 1065-1085 (1994) · Zbl 0813.90144 |
| [11] | Diamantaras, D. 1988, Public Goods, Equity, Regularity and Uncertainty, University of Rochester; Diamantaras, D. 1988, Public Goods, Equity, Regularity and Uncertainty, University of Rochester |
| [12] | Forges, F.; Minelli, E., Self-fulfilling Mechanisms in Bayesian Games, Games Econ. Behav., 25, 292-310 (1998) · Zbl 0912.90292 |
| [13] | Geanakoplos, J., Common Knowledge, Handbook of Game Theory (1994), Elsevier Science B.V, p. 1437-1497 · Zbl 0925.90082 |
| [14] | Green, J. 1973, Information, Efficiency and Equilibrium, Harvard University; Green, J. 1973, Information, Efficiency and Equilibrium, Harvard University |
| [15] | Green, J.; Laffont, J.-J., Posterior Implementability in a Two-Person Decision Problem, Econometrica, 55, 69-94 (1987) · Zbl 0624.62014 |
| [16] | Jordan, J.; Radner, R., Rational Expectations in Microeconomic Models: An Overview, J. Econ. Theory, 26, 201-223 (1982) · Zbl 0485.90020 |
| [17] | Krishna, V. 1986, Strategic Informational Equilibrium, Harvard Business School; Krishna, V. 1986, Strategic Informational Equilibrium, Harvard Business School |
| [18] | Lee, I. H., On the Convergence of Informational Cascades, J. Econ. Theory, 61, 395-411 (1993) · Zbl 0796.90012 |
| [19] | Minehart, D. Scotchmer, S. 1995, Ex Post Regret and the Decentralized Sharing of Information, Boston University; Minehart, D. Scotchmer, S. 1995, Ex Post Regret and the Decentralized Sharing of Information, Boston University · Zbl 0926.91010 |
| [20] | Minelli, E. 1995, Rational Expectations in Games, Universite Catholique de Louvain, Faculte des Sciences Economiques, Sociales et Politiques; Minelli, E. 1995, Rational Expectations in Games, Universite Catholique de Louvain, Faculte des Sciences Economiques, Sociales et Politiques |
| [21] | Minelli, E.; Polemarchakis, H. M., Knowledge at Equilibrium (1997), Morgan-Kaufmann |
| [22] | Radner, R., Rational Expectations Equilibrium Generic Existence and the Information Revealed by Prices, Econometrica, 47, 655-678 (1979) · Zbl 0426.90007 |
| [23] | Smith, L. A. Sorensen, P. 1994, Pathological Models of Observational Learning, Massachusetts Institute of Technology, Department of Economics; Smith, L. A. Sorensen, P. 1994, Pathological Models of Observational Learning, Massachusetts Institute of Technology, Department of Economics |
| [24] | Zhang, Z. Zhang, J. 1995, Information Externality, Information Cascades and the Asymptotic Efficiency of Information Cascades in Sequential Decisions, University of Kansas; Zhang, Z. Zhang, J. 1995, Information Externality, Information Cascades and the Asymptotic Efficiency of Information Cascades in Sequential Decisions, University of Kansas |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
