Clarity Trumps Content: An Experiment on Information Acquisition in Beauty Contests

61 Pages Posted: 17 Jan 2019

See all articles by Sanjay Banerjee

Sanjay Banerjee

University of Alberta - Department of Accounting, Operations & Information Systems

Hong Qu

Kennesaw State University - Michael J. Coles College of Business

Ran Zhao

Chapman University

Multiple version iconThere are 2 versions of this paper

Date Written: January 17, 2019

Abstract

We study agents' information acquisition decisions in a beauty contest game when they can access multiple information sources with different content and clarity. Each information source sends a signal with a common noise, and each agent observes this signal with an additional idiosyncratic noise. An information source has high content if it has low common noise and high clarity if it has low idiosyncratic noise. Theory predicts that under strong beauty contest incentives, agents ignore information from a source with high content if it has low clarity. Instead, they acquire equally costly information from a source with higher clarity despite its lower content. Our experimental results confirm the directional predictions; however the under-acquisition of the less-clear source is more severe than theoretical predictions. A source with low clarity is ignored even when its cost is negligible. Our findings provide a new strategic perspective to explain the differential impacts of content and clarity in corporate disclosures.

Keywords: bounded rationality, investor attention, coordination, information acquisition

Suggested Citation

Banerjee, Sanjay and Qu, Hong and Zhao, Ran, Clarity Trumps Content: An Experiment on Information Acquisition in Beauty Contests (January 17, 2019). Available at SSRN: https://ssrn.com/abstract=3317311 or http://dx.doi.org/10.2139/ssrn.3317311

Sanjay Banerjee (Contact Author)

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

Hong Qu

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Kennesaw, GA 30144
United States

HOME PAGE: http://https://works.bepress.com/hong-qu/

Ran Zhao

Chapman University ( email )

Orange, CA 92866
United States

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