American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Information Validates the Prior: A Theorem on Bayesian Updating and Applications
American Economic Review: Insights
vol. 3,
no. 2, June 2021
(pp. 165–82)
Abstract
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.Citation
Kartik, 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.20200284Additional Materials
JEL Classification
- C11 Bayesian Analysis: General
- D82 Asymmetric and Private Information; Mechanism Design
- D84 Expectations; Speculations