Information Acquisition, Efficiency, and Non-Fundamental Volatility

Benjamin Hebert and Jennifer La'O

No 26771, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze non-fundamental volatility and efficiency in large games featuring strategic interaction and endogenous information acquisition. We adopt the rational inattention approach to information acquisition but generalize to a large class of information costs. Agents can learn about exogenous states as well as endogenous aggregate actions. We study how properties of information costs relate to properties of equilibria. We provide necessary and sufficient conditions to guarantee zero non-fundamental volatility in equilibrium and another set of necessary and sufficient conditions to guarantee constrained efficient equilibria. Mutual information, the cost typically assumed in rational inattention models, precludes non-fundamental volatility and imposes efficiency.

JEL-codes: C72 D62 D83 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ore
Note: EFG
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Information Acquisition, Efficiency, and Nonfundamental Volatility (2023)
Working Paper: Information Acquisition, Efficiency, and Non-fundamental Volatility (2020)
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