Information Validates the Prior: A Theorem on Bayesian Updating and Applications
- (pp. 165-82)
AbstractWe 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.
CitationKartik, Navin, Frances Xu Lee, and Wing Suen. 2021. "Information Validates the Prior: A Theorem on Bayesian Updating and Applications." American Economic Review: Insights, 3 (2): 165-82. DOI: 10.1257/aeri.20200284
- C11 Bayesian Analysis: General
- D82 Asymmetric and Private Information; Mechanism Design
- D84 Expectations; Speculations