Costly Information Acquisition and Optimal Information Choice
24 Pages Posted: 31 May 2018
Date Written: May 9, 2018
Abstract
This paper studies the problem of costly information acquisition by focusing on the case of linear costs (e.g., rational inattention), and provides a characterization of optimal information using a supporting hyperplane argument. The characterization result is also applied on a pricing problem in a single buyer-seller setting, where the buyer can acquire information before purchasing a risky project from the seller. It is shown that the optimal price should be non-monotonic in the degree of the buyer's cost of information acquisition.
Keywords: information acquisition, non-monotonic pricing, rational inattention, supporting hyperplane
JEL Classification: D83, C61, L15
Suggested Citation: Suggested Citation