When are signals complements or substitutes?
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 setting with a binary state space and binary signals, we find an explicit characterization that permits an intuitive interpretation of complementarity and substitutability. We demonstrate how these conditions extend to more general settings. We also illustrate the implications of our concepts for three economic applications: information disclosure in auctions, information aggregation through voting, and polarization of beliefs.
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Volume (Year): 148 (2013)
Issue (Month): 1 ()
Pages: 165-195
| Handle: | RePEc:eee:jetheo:v:148:y:2013:i:1:p:165-195 |
| Contact details of provider: | Web page: http://www.elsevier.com/locate/inca/622869
|
References listed on IDEAS
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"Information Acquisition in Auctions,"
UCLA Economics Working Papers
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Discussion Papers
1117, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- Timothy Feddersen & Wolfgang Pesendorfer, 1997. "Voting Behavior and Information Aggregation in Elections With Private Information," Levine's Working Paper Archive 1560, David K. Levine.
- 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.
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- Jonathan Levin & Susan Athey, 2001. "The Value of Information in Monotone Decision Problems," Working Papers 01003, Stanford University, Department of Economics.
- Paul Milgrom & Robert J. Weber, 1981.
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Discussion Papers
462, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Miklos Sarvary & Philip M. Parker, 1997. "Marketing Information: A Competitive Analysis," Marketing Science, INFORMS, vol. 16(1), pages 24-38.
- Nicola Persico, 2004. "Committee Design with Endogenous Information," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 165-191.
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