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Ulric B. and Evelyn L. Bray Social Sciences Seminar

Wednesday, July 22, 2020
12:00pm to 1:00pm
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Learning Before Trading: On the Inefficiency of Ignoring Free Information
Doron Ravid, Assistant Professor, Kenneth C. Griffin Department of Economics, University of Chicago,

Abstract: This paper analyzes a bilateral trade model where the buyer's valuation for the object is uncertain and she can privately purchase any signal about her valuation. The seller makes a take-it-or-leave-it offer to the buyer. The cost of a signal is smooth and increasing in informativeness. We characterize the set of equilibria when learning is free and show that they are strongly Pareto ranked. Our main result is that, when learning is costly but the cost of information goes to zero, equilibria converge to the worst free-learning equilibrium.

Written with Anne-Katrin Roesler and Balazs Szentes.

How to view the seminar:
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For more information, please contact Letty Diaz by phone at 626-395-1255 or by email at letty.diaz@caltech.edu.