Entropy and the value of information for investors

Antonio Cabrales, Olivier Gossner and Roberto Serrano

No 2010-23, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

Abstract: Consider any investor who fears ruin 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 rejects alpha at some price, he also rejects beta at that price. We show that this complete informativeness ordering is represented by the decrease in entropy of his beliefs, regardless of his preferences, initial wealth or investment problem. It is also shown 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)
JEL-codes: C00 C43 D00 D80 D81 G00 G11 (search for similar items in EconPapers)
Date: 2010-12-06
New Economics Papers: this item is included in nep-gth
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Forthcoming in American Economic Review

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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 (2011)
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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