Entropy and the Value of Information for Investors

Antonio Cabrales, Olivier Gossner and Roberto Serrano
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Olivier Gossner: PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, LSE - London School of Economics and Political Science

PSE-Ecole d'économie de Paris (Postprint) from HAL

Abstract: Consider an investor who fears ruin when facing investments that satisfy no-arbitrage. Before investing he can purchase information about the state of nature as an information structure. Given his prior, information structure α investment dominates information structure β if, whenever he is willing to buy β at some price, he is also willing to buy α at that price. We show that this informativeness ordering is complete and is represented by the decrease in entropy of his beliefs, regardless of his preferences, initial wealth, or investment problem. We also show that no prior-independent informativeness ordering based on similar premises exists.

Date: 2013-02
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Citations: View citations in EconPapers (34)

Published in American Economic Review, 2013, pp.360-377. ⟨10.1257/aer.103.1.360⟩

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Related works:
Journal Article: Entropy and the Value of Information for Investors (2013)
Working Paper: Entropy and the Value of Information for Investors (2013)
Working Paper: Entropy and the value of information for investors (2011)
Working Paper: Entropy and the value of information for investors (2011)
Working Paper: Entropy and the value of information for investors (2011)
Working Paper: Entropy and the value of information for investors (2010)
Working Paper: Entropy and the value of information for investors (2010)
Working Paper: Entropy and the value of information for investors (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:hal-00812682

DOI: 10.1257/aer.103.1.360

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