Extrinsic Uncertainty and the Informational Role of Prices
Abstract We study a financial economy with finitely many states of private information. There are two agents, informed and uninformed. We define agents' expectations on future equilibrium prices as a probability distribution over K distinct values, i.e., we introduce K extrinsic events. We show that there are open sets of economies with nonrevealing (and also with partially revealing) equilibria: For an appropriate choice of self-fulfilling price expectations, observable equilibrium prices are signal-invariant. Journal of Economic Literature Classification Numbers: D52, D82, D84.