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The Cost of Information: The Case of Constant Marginal Costs

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  • Luciano Pomatto
  • Philipp Strack
  • Omer Tamuz

Abstract

We develop an axiomatic theory of information acquisition that captures the idea of constant marginal costs in information production: the cost of generating two independent signals is the sum of their costs, and generating a signal with probability half costs half its original cost. Together with Blackwell monotonicity and a continuity condition, these axioms determine the cost of a signal up to a vector of parameters. These parameters have a clear economic interpretation and determine the difficulty of distinguishing states.

Suggested Citation

  • Luciano Pomatto & Philipp Strack & Omer Tamuz, 2018. "The Cost of Information: The Case of Constant Marginal Costs," Papers 1812.04211, arXiv.org, revised Feb 2023.
    • Handle: RePEc:arx:papers:1812.04211
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    References listed on IDEAS

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    Cited by:

    1. Mira Frick & Ryota Iijima & Yuhta Ishii, 2021. "Learning Efficiency of Multi-Agent Information Structures," Cowles Foundation Discussion Papers 2299R, Cowles Foundation for Research in Economics, Yale University, revised Dec 2021.
    2. Hébert, Benjamin & Woodford, Michael, 2023. "Rational inattention when decisions take time," Journal of Economic Theory, Elsevier, vol. 208(C).
    3. Ben Hambly & Renyuan Xu & Huining Yang, 2021. "Recent Advances in Reinforcement Learning in Finance," Papers 2112.04553, arXiv.org, revised Feb 2023.
    4. Bartosz Maćkowiak & Filip Matějka & Mirko Wiederholt, 2023. "Rational Inattention: A Review," Journal of Economic Literature, American Economic Association, vol. 61(1), pages 226-273, March.
    5. Larionov, Daniil & Pham, Hien & Yamashita, Takuro & Zhu, Shuguang, 2021. "First Best Implementation with Costly Information Acquisition," TSE Working Papers 21-1261, Toulouse School of Economics (TSE), revised Apr 2022.
    6. Shaofei Jiang, 2024. "Costly Persuasion by a Partially Informed Sender," Papers 2401.14087, arXiv.org, revised Feb 2024.
    7. Gaglianone, Wagner Piazza & Giacomini, Raffaella & Issler, João Victor & Skreta, Vasiliki, 2022. "Incentive-driven inattention," Journal of Econometrics, Elsevier, vol. 231(1), pages 188-212.
    8. Zhou, Jing, 2022. "Capital reallocation from the perspective of endogenous lemons markets and information cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    9. Dewan, Ambuj & Neligh, Nathaniel, 2020. "Estimating information cost functions in models of rational inattention," Journal of Economic Theory, Elsevier, vol. 187(C).
    10. Benjamin Hébert & Michael Woodford, 2021. "Neighborhood-Based Information Costs," American Economic Review, American Economic Association, vol. 111(10), pages 3225-3255, October.
    11. David Walker-Jones, 2019. "Rational Inattention and Perceptual Distance," Papers 1909.00888, arXiv.org, revised Dec 2019.
    12. D'aniel Csaba, 2021. "Attention elasticities and invariant information costs," Papers 2105.07565, arXiv.org.
    13. Luca Braghieri, 2023. "Biased Decoding and the Foundations of Communication," CESifo Working Paper Series 10432, CESifo.
    14. Farzad Pourbabaee, 2021. "High Dimensional Decision Making, Upper and Lower Bounds," Papers 2105.00545, arXiv.org.
    15. Tommaso Denti & Massimo Marinacci & Aldo Rustichini, 2022. "Experimental Cost of Information," American Economic Review, American Economic Association, vol. 112(9), pages 3106-3123, September.
    16. Benjamin Davies, 2024. "Learning about a changing state," Papers 2401.03607, arXiv.org.
    17. Mark Whitmeyer, 2022. "Making Information More Valuable," Papers 2210.04418, arXiv.org, revised Dec 2023.
    18. Walker-Jones, David, 2023. "Rational inattention with multiple attributes," Journal of Economic Theory, Elsevier, vol. 212(C).
    19. Roc Armenter & Michèle Müller-Itten & Zachary Stangebye, 2020. "Rational Inattention via Ignorance Equivalence," Working Papers 20-24, Federal Reserve Bank of Philadelphia.
    20. Flynn, Joel P. & Sastry, Karthik A., 2023. "Strategic mistakes," Journal of Economic Theory, Elsevier, vol. 212(C).
    21. Pourbabaee, Farzad, 2021. "High dimensional decision making, upper and lower bounds," Economics Letters, Elsevier, vol. 204(C).
    22. Mark Whitmeyer & Kun Zhang, 2022. "Buying Opinions," Papers 2202.05249, arXiv.org, revised Jul 2023.

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