Presented By: Economic Theory
Economic Theory: Learning and Price Discovery in a Search Model
Stephan Lauermann, Bonn University
Abstract:
We study a dynamic, decentralized exchange economy with aggregate uncertainty about the relative scarcity of a commodity. We characterize price discovery and show how traders gradually learn about the state of the market through equilibrium actions. Such learning leads to equilibrium outcomes that are approximately competitive when the frictions are small. We derive equilibrium price and trading patterns related to learning, experimentation, and regret.
We study a dynamic, decentralized exchange economy with aggregate uncertainty about the relative scarcity of a commodity. We characterize price discovery and show how traders gradually learn about the state of the market through equilibrium actions. Such learning leads to equilibrium outcomes that are approximately competitive when the frictions are small. We derive equilibrium price and trading patterns related to learning, experimentation, and regret.
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