Abstract

http://ssrn.com/abstract=1720963
 
 

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Entropy and the Value of Information for Investors


Antonio Cabrales


Universidad Carlos III de Madrid

Olivier Gossner


Paris School of Economics (PSE)

Roberto Serrano


Brown University

November 2010


Abstract:     
Consider any investor who fears ruin facing any set of investments that satisfy no-arbitrage. Before investing, he can purchase information about the state of nature in the form of an information structure. Given his prior, information structure is more informative than information structure if whenever he rejects at some price, he also rejects at that price. We show that this complete informativeness ordering is represented by the decrease in entropy of his beliefs, regardless of his preferences, initial wealth or investment problem. It is also shown that no prior-independent informativeness ordering based on similar premises exists.

Number of Pages in PDF File: 38

Keywords: informativeness, information structures, entropy, decision under

JEL Classification: C00, C43, D00, D80, D81, G00, G11

working papers series


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Date posted: December 8, 2010  

Suggested Citation

Cabrales, Antonio and Gossner, Olivier and Serrano, Roberto, Entropy and the Value of Information for Investors (November 2010). Available at SSRN: http://ssrn.com/abstract=1720963 or http://dx.doi.org/10.2139/ssrn.1720963

Contact Information

Antonio Cabrales (Contact Author)
Universidad Carlos III de Madrid ( email )
CL. de Madrid 126
Madrid, Madrid 28903
Spain
Olivier Gossner
Paris School of Economics (PSE) ( email )
48 Boulevard Jourdan
Paris, 75014 75014
France
Roberto Serrano
Brown University ( email )
64 Waterman Street
Providence, RI 02912
United States
401-863-1036 (Phone)
401-863-1970 (Fax)
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