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

Ozbek, Kemal, Costly Information Acquisition and Optimal Information Choice (May 9, 2018). Available at SSRN: https://ssrn.com/abstract=3176318 or http://dx.doi.org/10.2139/ssrn.3176318

Kemal Ozbek (Contact Author)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

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