Information Acquisition with Heterogeneous Valuations

42 Pages Posted: 9 Aug 2019 Last revised: 9 Nov 2020

See all articles by Rohit Rahi

Rohit Rahi

London School of Economics - Department of Finance; London School of Economics & Political Science (LSE) - Financial Markets Group

Date Written: November 6, 2020

Abstract

We study the market for a risky asset with uncertain heterogeneous valuations. Agents seek to learn about their own valuation by acquiring private information and making inferences from the equilibrium price. As agents of one type gather more information, they pull the price closer to their valuation and further away from the valuations of other types. Thus they exert a negative learning externality on other types. This in turn implies that a lower cost of information for one type induces all agents to acquire more information. Private information production is typically not socially optimal. In the case of two types who differ in their cost of information, we can always find a Pareto improvement that entails an increase in the aggregate amount of information, with a higher proportion produced by the low-cost type.

Keywords: Heterogeneous valuations, information acquisition, learning externalities, strategic complementarities, welfare.

JEL Classification: D82, G14

Suggested Citation

Rahi, Rohit, Information Acquisition with Heterogeneous Valuations (November 6, 2020). Journal of Economic Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3433403 or http://dx.doi.org/10.2139/ssrn.3433403

Rohit Rahi (Contact Author)

London School of Economics - Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 7313 (Phone)

HOME PAGE: http://https://sites.google.com/lse.ac.uk/rohit-rahi

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
25
Abstract Views
284
PlumX Metrics