Informative Consumption

Xuehan Jiang and Xi Zhi Lim

Papers from arXiv.org

Abstract: Risky consumption generates information when uncertainty is resolved. This paper axiomatically characterizes the consumption-information trade-off even when the analyst does not observe an agent's future problems. A subjective future menu underpins the agent's willingness to sacrifice current consumption for future information. By carefully separating objective risk from subjective risk, we decompose the certainty equivalent of an act into a standard risk premium and a novel information premium. To facilitate applications, we introduce an Arrow-Debreu-Pratt parameterization that yields a tractable model, capturing risk aversion and information incentives with a single coefficient for each. Finally, we show that heterogeneity in risk-taking may arise from differing opportunities to capitalize on information, rather than being solely attributable to differences in risk aversion.

Date: 2026-06
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