Information Aggregation with Costly Information Acquisition

38 Pages Posted: 14 Sep 2023 Last revised: 19 Oct 2023

Date Written: September 12, 2023


We study information aggregation in a dynamic trading model with par- tially informed traders. Ostrovsky [2012] showed that ‘separable’ securities aggregate information in all equilibria, however, separability is not robust to small changes in the traders’ private information. To remedy this problem, we enhance the model by allowing traders to acquire signals with cost κ, in every period. We show that ‘κ separable securities’ aggregate information and, as the cost decreases, nearly all securities become κ separable, irrespective of the traders’ initial private information. Moreover, the switch to κ separabil- ity happens not gradually but discontinuously, hence even a small decrease in costs can result in a security aggregating information. Finally, even with myopic traders, cheaper information may accelerate or decelerate information aggregation for all but Arrow-Debreu securities.

Keywords: Information Aggregation, Information Acquisition, Financial Markets, Prediction Markets

JEL Classification: C91, D82, D83, D84, G14, G41

Suggested Citation

Galanis, Spyros and Mikhalishchev, Sergei, Information Aggregation with Costly Information Acquisition (September 12, 2023). Available at SSRN: or

Spyros Galanis (Contact Author)

Durham University ( email )

Durham, DH1 3LE
Great Britain

Sergei Mikhalishchev

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics