Entropy and the Value of Information for Investors
AbstractConsider an investor who fears ruin when facing investments that satisfy no-arbitrage. Before investing he can purchase information about the state of nature as an information structure. Given his prior, information structure Î± investment dominates information structure Î² if, whenever he is willing to buy Î² at some price, he is also willing to buy Î± 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. (JEL D14, D81, D83, G11)
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 103 (2013)
Issue (Month): 1 (February)
Other versions of this item:
- Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2010. "Entropy and the value of information for investors," Working Papers 2010-17, Brown University, Department of Economics.
- Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2010. "Entropy and the value of information for investors," Levine's Working Paper Archive 661465000000000355, David K. Levine.
- Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2010. "Entropy and the value of information for investors," Working Papers 2010-23, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
- Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2011. "Entropy and the value of information for investors," PSE Working Papers halshs-00648884, HAL.
- Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2011. "Entropy and the value of information for investors," Economics Working Papers we1104, Universidad Carlos III, Departamento de Economía.
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Olivier Gossner & Penelope Hernandez & Abraham Neyman, 2004.
"Optimal Use of Communication Resources,"
Discussion Paper Series
dp377, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Dean P. Foster & Sergiu Hart, 2009.
"An Operational Measure of Riskiness,"
Journal of Political Economy,
University of Chicago Press, vol. 117(5), pages 785 - 814.
- Dean P. Foster & Sergiu Hart, 2007. "An Operational Measure of Riskiness," Discussion Paper Series dp454, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Dean Foster & Sergiu Hart, 2007. "An Operational Measure of Riskiness," Levine's Bibliography 843644000000000095, UCLA Department of Economics.
- Azrieli, Yaron & Lehrer, Ehud, 2008.
"The value of a stochastic information structure,"
Games and Economic Behavior,
Elsevier, vol. 63(2), pages 679-693, July.
- Jonathan Levin & Susan Athey, 2001.
"The Value of Information in Monotone Decision Problems,"
01003, Stanford University, Department of Economics.
- Susan Athey & Jonathan Levin, 1998. "The Value of Information In Monotone Decision Problems," Working papers 98-24, Massachusetts Institute of Technology (MIT), Department of Economics.
- Sergiu Hart, 2011.
"Comparing Risks by Acceptance and Rejection,"
Journal of Political Economy,
University of Chicago Press, vol. 119(4), pages 617 - 638.
- Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
- Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
- Olivier Gossner, 2011. "Simple Bounds on the Value of a Reputation," Econometrica, Econometric Society, vol. 79(5), pages 1627-1641, 09.
- Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2012.
"The Appeal of Information Transactions,"
2012-13, Brown University, Department of Economics.
- Stark, Oded & Jakubek, Marcin & Falniowski, Fryderyk, 2013. "Reconciling the Rawlsian and the utilitarian approaches to the maximization of social welfare," University of Tuebingen Working Papers in Economics and Finance 65, University of Tuebingen, Faculty of Economics and Social Sciences.
- Stark, Oded & Jakubek, Marcin & Falniowski, Fryderyk, 2014. "Reconciling the Rawlsian and the utilitarian approaches to the maximization of social welfare," Discussion Papers 162881, University of Bonn, Center for Development Research (ZEF).
- Kyungmin Kim & Benjamin Lester & Braz Camargo, 2012.
"Subsidizing Price Discovery,"
2012 Meeting Papers
338, Society for Economic Dynamics.
- Camargo, Braz & Pastorino, Elena, 2012.
"Career concerns: A human capital perspective,"
Textos para discussÃ£o
288, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.