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When are signals complements or substitutes?

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  • Tilman Borgers

    ()

  • Angel Hernando-Veciana

    ()

  • Daniel Krahmer

    ()

Abstract

The paper introduces a notion of complementarity (substitutability) of two signals which requires that in all decision problems each signal becomes more (less) valuable when the other signal becomes available. We provide a general characterization which relates complementarity and substitutability to a Blackwell-comparison of two auxiliary signals. In a special setting with a binary state space and binary, symmetric signals, we find an explicit characterization that permits an intuitive interpretation of complementarity and substitutability. We demonstrate how these conditions extend to the general case. Finally, we study implications of complementarity and substitutability for information acquisition and in a second price auction.

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File URL: http://e-archivo.uc3m.es/bitstream/10016/679/1/we072515.pdf
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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we072111.

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Date of creation: Mar 2007
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Handle: RePEc:cte:werepe:we072111

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References

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  1. James Andreoni & Tymofiy Mylovanov, 2012. "Diverging Opinions," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 209-32, February.
  2. Schmitz, Patrick W. & Tröger, Thomas, 2011. "The (sub-)optimality of the majority rule," MPRA Paper 32716, University Library of Munich, Germany.
  3. Milgrom, Paul & Weber, Robert J., 1982. "The value of information in a sealed-bid auction," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 105-114, June.
  4. Dow, James & Gorton, Gary, 1993. "Trading, Communication and the Response of Asset Prices to News," Economic Journal, Royal Economic Society, vol. 103(418), pages 639-46, May.
  5. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
  6. Timothy Feddersen & Wolfgang Pesendorfer, 1997. "Voting Behavior and Information Aggregation in Elections with Private Information," Econometrica, Econometric Society, vol. 65(5), pages 1029-1058, September.
  7. 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.
  8. Miklos Sarvary & Philip M. Parker, 1997. "Marketing Information: A Competitive Analysis," Marketing Science, INFORMS, vol. 16(1), pages 24-38.
  9. Nicola Persico, 2004. "Committee Design with Endogenous Information," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 165-191.
  10. Nicola Persico, 2004. "Committee Design with Endogenous Information," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 165-191, 01.
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Cited by:
  1. Sobel, Joel, 0. "On the relationship between individual and group decisions," Theoretical Economics, Econometric Society.

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