Article: article from journal or magazin.
Do prices transmit rationally expected information?
Journal of the European Economic Association
A simple model with asymmetric information, in which inventory holders or traders submit demand curves to an auctioneer, has a unique partially revealing equilibrium. We wonder whether the agents can plausibly coordinate on this equilibrium through "eductive" reasoning relying on common knowledge. The analysis stresses the role of two effects, sensitivity and amplification, whose product should be small enough. The property is obtained whenever the equilibrium excess demand is steep enough, i.e., when the search for information does not distort demand too much. Neither the influence of the number of informed agents nor that of noise trading are monotonic. Real-time learning has strikingly different features. [Authors]
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