This research project examines the informational inefficiency of market prices in the presence of Knightian uncertainty or ambiguity by modeling the decision making of financial market traders.
Asset markets are continually beset by new information, which includes information about counterparty, sovereign, market and other risks. The quality of this information and hence its utility can vary widely both across asset classes and across times. This project sought to understand when information that is perceived to be uncertain is not reflected in the prices observed in asset markets as well as the implications that this informational inefficiency has for financial market price volatility and swings, the volume of trade, contagion, and the economic welfare of market participants. Condie and Ganguli published, “The Pricing Effects of Ambiguous Private Information” in the Journal of Economic Theory.
