Learning before Trading: On the Inefficiency of Ignoring Free Information

Doron Ravid, Anne-Katrin Roesler and Balázs Szentes

Journal of Political Economy, 2022, vol. 130, issue 2, 346 - 387

Abstract: This paper analyzes a bilateral trade model in which the buyer’s valuation for the object is uncertain and she can privately purchase any signal about her valuation. The seller makes a take-it-or-leave-it offer to the buyer. The cost of a signal is smooth and increasing in informativeness. We characterize the set of equilibria when learning is free and show that they are strongly Pareto ranked. Our main result is that when learning is costly but the cost of information goes to zero, equilibria converge to the worst free-learning equilibrium.

Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://dx.doi.org/10.1086/717350 (application/pdf)
http://dx.doi.org/10.1086/717350 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
Working Paper: Learning before trading: on the inefficiency of ignoring free information (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:doi:10.1086/717350

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().