Information Acquisition and Choice Under Uncertainty
University of Southern California - Department of Economics
Juan D. Carrillo
University of Southern California - Department of Economics; Centre for Economic Policy Research (CEPR)
Journal of Economics & Management Strategy, Vol. 18, No. 2, pp. 423-455, Summer 2009
This paper presents a model where individuals have imperfect information and there is an opportunity cost of learning. It shows that the endogenous decision to collect costly information before taking an action has a systematic effect on choices. More precisely, consider two alternatives with ex ante identical expected payoff but different variances. The model predicts that, after the learning process is stopped, a majority of individuals will select the alternative with largest payoff-variance. The result persists when agents have multiple sources of information. Applications to entrepreneurial investments, composition of advisory committees, and judicial decision-making are discussed.
Number of Pages in PDF File: 33Accepted Paper Series
Date posted: May 5, 2009
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