Titolo

The ''new'' Geithner plan

2 commenti (espandi tutti)

This is close to home, so I feel I have to say something. The post mentions (in different words) willingness to sell and willigness to buy (or what is sometimes called a bid-ask spread). The fact that bank managers are willing to sell at 60, does not necessarily imply they know what the asset is worth. In fact, they may think the asset is worth anywhere between 30 and 60, and yet not be willing to sell for less than 60. In an enviroment like the one we described in the paper, when the range of probabilities used to evaluate the assets is very large no-trade results exactly because sellers ask for too high a price relative to what buyers are willing to pay for. I am not sure this is exactly what is happening with the toxic assets (I'm a poor micro theorist), but I suspect (Knightian) uncertainty could be one of the explanations.

Luca: serious question. In what sense "ambiguity" fits the observations better than the plain idea that those who have the info believes this stuff is worth nothing? I understand that under ambiguity if someone follows, say, a α-MEU rule (as in Ghirardato, Maccheroni, Marinacci) one tends to invest less (in fact, see Paolo&Co on this).

My issue is: is there a way to tell the two things apart? That one knows better than the other versus both being in an "ambiguous" situation?