American Economic Review: Insights
American Economic Association
We develop a result on expected posteriors for Bayesians with heterogenous priors, dubbed information validates the prior (IVP). Under familiar ordering requirements, Anne expects a (Blackwell) more informative experiment to bring Bob's posterior mean closer to Anne's prior mean. We apply the result in two contexts of games of asymmetric information: voluntary testing or certification, and costly signaling or falsification. IVP can be used to determine how an agent's behavior responds to additional exogenous or endogenous information. We discuss economic implications.
Kartik, Navin; Xu Lee, Frances; and Suen, Wing. Information Validates the Prior: A Theorem on Bayesian Updating and Applications. American Economic Review: Insights, 3, 2: 165-82, 2021. Retrieved from Loyola eCommons, School of Business: Faculty Publications and Other Works, http://dx.doi.org/DOI: 10.1257/aeri.20200284
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.
© 2021, American Economic Association