On the Possibility of Informationally Inefficient Markets Without Noise
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arXiv
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| Format: | Preprint |
| Veröffentlicht: |
2026
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| _version_ | 1866910205701259264 |
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| author | Breugem, Mattthijs |
| author_facet | Breugem, Mattthijs |
| contents | Noise traders can be dispensed with entirely. Partial revelation of information through prices arises under any non-exponential expected utility preference, including CRRA, without noise traders, random endowments, supply shocks, hedging motives, or behavioral biases. The model contains zero exogenous noise.
The mechanism is a mismatch between the space in which market clearing aggregates signals and the Bayesian sufficient statistic. CARA demand is linear in log-odds, so prices aggregate in log-odds space and reveal the statistic exactly. Every other preference aggregates differently; the resulting Jensen gap makes revelation partial. I prove that CARA is the unique fully revealing preference class, characterize the rational expectations equilibrium via a contour integration fixed point, and verify that partial revelation survives learning from prices. The Grossman-Stiglitz paradox is resolved: information acquisition has positive value within the rational class. Numerical solution of the rational expectations fixed point at K = 3 confirms partial revelation, positive trade volume, and positive value of information across the full range of CRRA risk aversion, vanishing only in the CARA limit. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2605_09136 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | On the Possibility of Informationally Inefficient Markets Without Noise Breugem, Mattthijs Theoretical Economics Noise traders can be dispensed with entirely. Partial revelation of information through prices arises under any non-exponential expected utility preference, including CRRA, without noise traders, random endowments, supply shocks, hedging motives, or behavioral biases. The model contains zero exogenous noise. The mechanism is a mismatch between the space in which market clearing aggregates signals and the Bayesian sufficient statistic. CARA demand is linear in log-odds, so prices aggregate in log-odds space and reveal the statistic exactly. Every other preference aggregates differently; the resulting Jensen gap makes revelation partial. I prove that CARA is the unique fully revealing preference class, characterize the rational expectations equilibrium via a contour integration fixed point, and verify that partial revelation survives learning from prices. The Grossman-Stiglitz paradox is resolved: information acquisition has positive value within the rational class. Numerical solution of the rational expectations fixed point at K = 3 confirms partial revelation, positive trade volume, and positive value of information across the full range of CRRA risk aversion, vanishing only in the CARA limit. |
| title | On the Possibility of Informationally Inefficient Markets Without Noise |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2605.09136 |