Good News and Bad News: Representation Theorems and Applications
Abstract
This is an article about modeling methods in information economics. A notion of "favorableness" of news is introduced, characterized, and applied to four simple models. In the equilibria of these models, (1) the arrival of good news about a firm's prospects always causes its share price to rise, (2) more favorable evidence about an agent's effort leads the principal to pay a larger bonus, (3) buyers expect that any product information withheld by a salesman is unfavorable to his product, and (4) bidders figure that low bids by their competitors signal a low value for the object being sold.
Cite this
Paul Milgrom (1981). Good News and Bad News: Representation Theorems and Applications. The Bell Journal of Economics. https://doi.org/10.2307/3003562
@article{paul1981good,
title = {Good News and Bad News: Representation Theorems and Applications},
author = {Milgrom, Paul},
year = {1981},
journal = {The Bell Journal of Economics},
doi = {10.2307/3003562}
}Citations in this library
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