When are signals complements or substitutes?
AbstractThe 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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Complementarity; Substitutability; Value of information; Blackwell-ordering; Statistical decision problem; Information acquisition; Second price auction;
Other versions of this item:
- Börgers, Tilman & Hernando-Veciana, Angel & Krähmer, Daniel, 2010. "When are Signals Complements or Substitutes?," MPRA Paper 29124, University Library of Munich, Germany.
- Tilman Borgers & Angel Hernando-Veciana & Daniel Krahmer, 2007. "When are signals complements or substitutes?," Economics Working Papers we072111, Universidad Carlos III, Departamento de Economía.
- Tilman Borgers & Angel Hernanco-Veciana & Daniel Krohmer, 2010. "When are Signals Complements or Substitutes," Discussion Papers 1488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- C00 - Mathematical and Quantitative Methods - - General - - - General
- C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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