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Award Abstract #0214421
Toward a Strategic Foundation for Rational Expectations Equilibrium
| NSF Org: |
SES
Division of Social and Economic Sciences
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| Initial Amendment Date: |
February 11, 2003 |
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| Latest Amendment Date: |
April 12, 2005 |
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| Award Number: |
0214421 |
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| Award Instrument: |
Continuing grant |
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| Program Manager: |
Daniel H. Newlon
SES Division of Social and Economic Sciences
SBE Directorate for Social, Behavioral & Economic Sciences
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| Start Date: |
February 1, 2003 |
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| Expires: |
January 31, 2007 (Estimated) |
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| Awarded Amount to Date: |
$104787 |
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| Investigator(s): |
Philip Reny preny@uchicago.edu (Principal Investigator)
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| Sponsor: |
University of Chicago
5801 South Ellis Avenue
Chicago, IL 60637 773/702-8602
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| NSF Program(s): |
ECONOMICS
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| Field Application(s): |
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| Program Reference Code(s): |
OTHR,0000
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| Program Element Code(s): |
1320
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ABSTRACT
This research seeks to understand whether large markets (i.e., markets consisting of many buyers and many sellers) can effectively aggregate the disparate pieces of information that each individual acting in the market possesses. It is often said that prices "convey" information. How, exactly, is this achieved? Under what conditions is it achieved? Stock markets are a prime example of markets in which information plays a crucial role. When information is freely available to all, it is well understood that markets operate efficiently. But in reality each investor possesses a small amount of information, which, on its own, might convey little about the value of the stock in question. However, if the information possessed by all traders could somehow be pooled, it would serve as a much better forecaster of the value of the stock.
We seek to understand whether market prices alone are capable of conveying the information possessed by individual traders. When this occurs, the market achieves a high level of efficiency. When this fails to occur, one can begin to explore ways in which the market's design might be responsible for the failure. Corrective measures might then be called for.
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