Entropy and the value of information for investors

Antonio Cabrales, Olivier Gossner and Roberto Serrano

PSE Working Papers from HAL

Abstract: Consider any investor who fears ruin when facing any set of investments that satisfy no-arbitrage. Before investing, he can purchase information about the state of nature in the form of an information structure. Given his prior, information structure $\alpha$ is more informative than information structure $\beta$ if, whenever he is willing to buy $\beta$ at some price, he is also willing to buy $\alpha$ 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.

Keywords: Informativeness; Information structures; Entropy; Decision under uncertainty; Investment; Blackwell ordering (search for similar items in EconPapers)
Date: 2011-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00648884v1
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Citations: View citations in EconPapers (1)

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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 (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 (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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