Information Aversion

Valentin Haddad and Marianne Andries
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Valentin Haddad: Princeton University

No 1091, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: We propose a theory of inattention solely based on preferences, absent any cognitive limitations, or external costs of acquiring information. Under disappointment aversion, information decisions and risk attitude are intertwined, and agents are intrinsically information averse. We illustrate this link between attitude towards risk and information in a standard portfolio problem. We show agents never choose to receive information continuously in a diffusive environment: they optimally acquire information at infrequent intervals only. In contrast to existing theories, we show the optimal frequency of information acquisition can decrease when risk increases, consistent with empirical evidence. We show information aversion tends to lower significantly the benefits of diversification, leads to a joint evaluation of project gains and their information process, as well as creates scope for the creation of information providers. These results suggest our approach can explain many observed features of decision under uncertainty.

Date: 2014
New Economics Papers: this item is included in nep-dge, nep-exp, nep-mic and nep-upt
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Information Aversion (2020)
Working Paper: Information Aversion (2020)
Working Paper: Information Aversion (2017)
Working Paper: Information Aversion (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:1091

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