Aurélien Baillon (Erasmus University Rotterdam)

This week's seminar will be given by Aurélien Baillon from the Erasmus University Rotterdam.  

"Aurelien Baillon is Professor of Economics of Uncertainty, in the Behavioral Economics group. He studied economics and management at Ecole Normale Superieure de Cachan and has a PhD in economics from Arts et Metiers Paristech. Aurelien's work focuses on individual decision making under risk and ambiguity. Through both empirical and theoretical studies, his research addresses issues in subjective probability elicitation, models of attitude towards risk and ambiguity, and aggregation of expert opinions." (Erasmus University website)

Title: Bayesian markets for unverifiable truths

Abstract: Subjective data play an important role in modern economics. For instance, experimental economists often collect information about beliefs or feelings to complement choice data. Another example is the development of new welfare measurements, based on people’s subjective assessments of their happiness or their life satisfaction. A problem of such measurements is that people have no incentives to tell the truth. To solve this problem and make subjective assessments incentive compatible, I introduce a new market institution, called Bayesian markets. On Bayesian markets, agents trade an asset whose value is the proportion of people answering Yes to a given question. Only those answering Yes have the right to buy the asset and those answering No the right to sell it. I show that truth-telling is the optimal strategy. Bayesian markets also allow us to find out the truth among people’s opinions, even when the majority is wrong.