The Social Value of Information Uncertainty

41 Pages Posted: 28 Feb 2019 Last revised: 27 Nov 2023

See all articles by Xuezhong He

Xuezhong He

Xi'an Jiaotong-Liverpool University (XJTLU)

Lei Shi

Macquarie University; Financial Research Network (FIRN)

Marco Tolotti

Ca Foscari University of Venice - Department of Management

Date Written: February 12, 2019


We analyze the welfare implication of information acquisition uncertainty in a Grossman-Stiglitz economy with endowment shocks, where acquiring an asset's payoff information is costly and uncertain. Investors make optimal probabilistic information choices subject to an increasing cost to have more chances to be informed. This gives rise to an anticipatory benefit so that informed trading can improve social welfare, which can be significant when investors have weak risk-sharing incentives, small endowment shocks, and noisy payoff information and endowments. Moreover, with heterogeneous endowment shocks, a continuum of Pareto optimal information-acquisition equilibria can exist.

Keywords: Social welfare, rational expectations equilibrium, informed trading, information acquisition uncertainty, probabilistic choices

JEL Classification: D82, G12, G14

Suggested Citation

He, Xue-Zhong 'Tony' and Shi, Lei and Tolotti, Marco, The Social Value of Information Uncertainty (February 12, 2019). Available at SSRN: or

Xue-Zhong 'Tony' He (Contact Author)

Xi'an Jiaotong-Liverpool University (XJTLU) ( email )

111 Renai Road, SIP
Suzhou, JiangSu province 215123

Lei Shi

Macquarie University ( email )

New South Wales 2109
+612 98508478 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


Marco Tolotti

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121

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