Risky Investments under Static and Dynamic Information Acquisition

63 Pages Posted: 17 Mar 2018 Last revised: 13 Nov 2023

See all articles by Jussi Keppo

Jussi Keppo

National University of Singapore (NUS) - NUS Business School

Hong Ming Tan

National University of Singapore (NUS) - NUS Business School

Chao Zhou

National University of Singapore (NUS) - Department of Mathematics

Date Written: November 12, 2023

Abstract

We show that under a dynamic information acquisition process, a risk averse investor's unconditional expected optimal quantity of information and investment amount are higher than those under the corresponding static information acquisition process. However, when the initial belief of the investment payoff is either high or low, static and dynamic information acquisitions provide similar expected results. To incentivize decision makers to acquire information and invest when the initial belief of a risky investment payoff is mediocre, governments and other central planners should allow organizations and individuals to acquire information dynamically. This has implications on, e.g., clinical trials. Furthermore, we show that, especially under dynamic information acquisition mode, investment amount falls in the marginal cost of information.

Keywords: Information acquisition; Investment; Bayesian learning;

JEL Classification: D81, D83, G11

Suggested Citation

Keppo, Jussi and Tan, Hong Ming and Zhou, Chao, Risky Investments under Static and Dynamic Information Acquisition (November 12, 2023). Available at SSRN: https://ssrn.com/abstract=3141043 or http://dx.doi.org/10.2139/ssrn.3141043

Jussi Keppo (Contact Author)

National University of Singapore (NUS) - NUS Business School ( email )

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Hong Ming Tan

National University of Singapore (NUS) - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

Chao Zhou

National University of Singapore (NUS) - Department of Mathematics ( email )

Department of Mathematics
Singapore, 117543
Singapore

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