Asymmetric Information, Nonadditive Expected Utility, and the Information Revealed by Prices: An Example.

The author develops a simple example of a model in which agents have asymmetric information and preferences that are represented by a nonadditive expected utility function. The a priori uninformed agent, after observing the equilibrium price, has conditional beliefs that remain nonadditive. Then, even when the equilibrium price function is fully revealing (i.e., one-to-one), it may be worthwhile for an a priori uninformed agent to buy 'redundant' private information if he is more confident in that information than in that revealed by the price system. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.