Market efficiency hinges on widespread information sharing, study finds.
The article discusses how markets can reach a state of efficient information sharing through a concept called Common Knowledge Equilibrium. This equilibrium occurs when prices reflect all available information, leading to rational expectations. The researchers show that for this equilibrium to be unique, a large number of informed agents is needed. If all agents rely on prices for information about the same event, multiple equilibria can exist. The study also presents a market game where this equilibrium is achieved through repeated elimination of weak strategies.