Desmarais Global Finance Research Centre (DGFRC) Seminar: Eduardo Davila
Eduardo Davila
Yale University
Probability Pricing and the Value of Information
Date: Friday, December 6, 2024
Time: 10:30-11:45 am
Location: Bronfman Bldg. (1001 Sherbrooke St. West), Room 340
All are cordially invited to attend.
Abstract:
This paper presents a framework for evaluating the welfare implications of changes in information in general environments. By combining conventional cash-flow pricing with the newly introduced notion of probability pricing, we provide a unified metric to assess the marginal value of changes in consumption, probabilities, and information structures. This framework enables the decomposition of efficiency gains using tools from welfare economics. We present three applications that illustrate how the new approach can be used to revisit existing results and derive new results: i) the classic principal-agent model, ii) a foreknowledge model, where public information may destroy insurance opportunities, and iii) a competitive Rational Expectations Equilibrium model, where prices aggregate dispersed information held by investors.
