Information Aggregation with Costly Information Acquisition
Fuente:
arXiv
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| Hauptverfasser: | , |
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| Format: | Preprint |
| Veröffentlicht: |
2024
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| _version_ | 1866918460156542976 |
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| author | Galanis, Spyros Mikhalishchev, Sergei |
| author_facet | Galanis, Spyros Mikhalishchev, Sergei |
| contents | We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky [2012] showed that `separable' securities aggregate information in all equilibria, however, determining whether a security is separable requires knowing the exact information structure of agents. To remedy this problem, we allow traders to acquire signals with cost $κ$, in every period. We show that `$κ$ separable securities' characterize information aggregation and, as the cost decreases, almost all securities become $κ$ separable, irrespective of the traders' initial private information. Moreover, the switch to $κ$ separability happens not gradually but discontinuously, hence even a small decrease in costs can result in a security aggregating information. We provide a complete classification of securities in terms of how well they aggregate information, which surprisingly depends only on their payoff structure. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2406_07186 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Information Aggregation with Costly Information Acquisition Galanis, Spyros Mikhalishchev, Sergei Theoretical Economics We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky [2012] showed that `separable' securities aggregate information in all equilibria, however, determining whether a security is separable requires knowing the exact information structure of agents. To remedy this problem, we allow traders to acquire signals with cost $κ$, in every period. We show that `$κ$ separable securities' characterize information aggregation and, as the cost decreases, almost all securities become $κ$ separable, irrespective of the traders' initial private information. Moreover, the switch to $κ$ separability happens not gradually but discontinuously, hence even a small decrease in costs can result in a security aggregating information. We provide a complete classification of securities in terms of how well they aggregate information, which surprisingly depends only on their payoff structure. |
| title | Information Aggregation with Costly Information Acquisition |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2406.07186 |