Using the notion of subjective beliefs from Rigotti et al. (2008), we provide, for a wide variety of dynamic models with ambiguity aversion, a connection between Dynamic Consistency, prior by prior Bayesian updating of beliefs revealed by trading behavior and positive value of information. We apply these characterizations in a multi agent setting. First, we show that a weakening of DC, consistent with Ellsberg type behavior, precludes speculative trade, generalizing the result of Milgrom and Stokey (1982). Second, we show that, in a risk sharing environment with no aggregate risk, if the value of information is positive for all agents, then the value of public information is negative, generalizing the result of Schlee (2001). JEL-Classication s: D81, D83, D91
Read full abstract