Risk Advantages and Information Acquisition

Thomas Palfrey

Bell Journal of Economics, 1982, vol. 13, issue 1, 219-224

Abstract: In some competitive situations under uncertainty, less risk averse competitors have an advantage over more risk averse opponents. Private information acquisition by the advantaged players diminishes this advantage by reducing the risk faced by their opponents in a Nash equilibrium. This tradeoff between risk advantages and informational advantages is examined in the context of a duopoly model with uncertain demand. It is found that private information acquisition may reduce the risk advantage by so much that the overall effect is to make the informed, less risk averse competitor worse off and the uninformed, more risk averse competitor better off.

Date: 1982
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