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The Law of Large Demand for Information

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Author Info

  • Giuseppe Moscarini

    ()
    (Yale University)

  • Lones Smith

    ()
    (University of Michigan)

Abstract

An unresolved problem in Bayesian decision theory is how to value and price information. This paper resolves both problems assuming inexpensive information. Building on Large Deviation Theory, we produce a generically complete asymptotic order on samples of i.i.d. signals in finite-state, finite-action models. Computing the marginal value of an additional signal, we find it is eventually exponentially falling in quantity, and higher for lower quality signals. We provide a precise formula for the information demand, valid at low prices: asymptotically a constant times the log price, and falling in the signal quality for a given price. Copyright The Econometric Society 2002.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 70 (2002)
Issue (Month): 6 (November)
Pages: 2351-2366

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Handle: RePEc:ecm:emetrp:v:70:y:2002:i:6:p:2351-2366

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Cited by:
  1. Vlastakis, Nikolaos & Markellos, Raphael N., 2012. "Information demand and stock market volatility," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1808-1821.
  2. Moscarini, Giuseppe, 2004. "Limited information capacity as a source of inertia," Journal of Economic Dynamics and Control, Elsevier, vol. 28(10), pages 2003-2035, September.
  3. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2010. "The relative contributions of private information sharing and public information releases to information aggregation," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1574-1601, July.
  4. Jussi Keppo & Giuseppe Moscarini & Lones Smith, 2005. "The Demand for Information: More Heat than Light," Cowles Foundation Discussion Papers 1498, Cowles Foundation for Research in Economics, Yale University.
  5. repec:dgr:uvatin:2004077 is not listed on IDEAS
  6. repec:dgr:uvatin:2004082 is not listed on IDEAS
  7. Stefano Ficco, 2004. "Information Overload in Monopsony Markets," Tinbergen Institute Discussion Papers 04-082/1, Tinbergen Institute.

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