Adam Smith Business School

Professor Spyros Galanis, Durham University

"Information Aggregation with Costly Information Acquisition"
Tuesday, 5 March. 16:00
Room 355 Gilbert Scott Building

Abstract

We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky [2012] showed that ‘separable’ securities aggregate information in all equilibria, however, separability is not robust to small changes in the traders’ private information. To remedy this problem, we enhance the model by allowing traders to acquire signals with cost κ, in every period. We show that ‘κ separable securities’ aggregate information and, as the cost decreases, nearly all securities become κ separable, irrespective of the traders’ initial private information. Moreover, the switch to κ separability happens not gradually but discontinuously, hence even a small decrease in costs can result in a security aggregating information. Finally, even with myopic traders, cheaper information may accelerate or decelerate information aggregation for all but Arrow-Debreu securities.

Bio

Spyros Galanis is a Professor in Economics at the Durham University Business School and Director of the Durham Research in Economic Analysis and Mechanisms (DREAM Research Centre). His research interests include decision theory, game theory, experiments and finance.

His main research focuses on the role that uncertainty, information and bounded perception have on single- and multi-agent decision making. He examines under which conditions speculative trade occurs, in three different settings: when traders have a bounded perception of their uncertainty due to their unawareness, when they are dynamically and time inconsistent, and when they are not financially sophisticated enough to formulate complex trading strategies. He also studies when information is valuable and whether markets (including the newly formulated "prediction" markets) aggregate and reveal information through their price mechanism.

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For further information, please contact business-school-research@glasgow.ac.uk

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First published: 5 February 2024