Information Acquisition and Choice Under Uncertainty

Isabelle Brocas and Juan D. Carrillo

Journal of Economics & Management Strategy, 2009, vol. 18, issue 2, 423-455

Abstract: This paper presents a model where individuals have imperfect information and there is an opportunity cost of learning. It shows that the endogenous decision to collect costly information before taking an action has a systematic effect on choices. More precisely, consider two alternatives with ex ante identical expected payoff but different variances. The model predicts that, after the learning process is stopped, a majority of individuals will select the alternative with largest payoff‐variance. The result persists when agents have multiple sources of information. Applications to entrepreneurial investments, composition of advisory committees, and judicial decision‐making are discussed.

Date: 2009
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https://doi.org/10.1111/j.1530-9134.2009.00219.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:18:y:2009:i:2:p:423-455

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