Entropy and the value of information for investors
Consider an investor who fears ruin when facing investments that satisfy no-arbitrage. Before investing he can purchase information about the state of nature as an information structure. Given his prior, information structure α investment dominates information structure β if, whenever he is willing to buy β at some price, he is also willing to buy α at that price. We show that this informativeness ordering is complete and is represented by the decrease in entropy of his beliefs, regardless of his preferences, initial wealth, or investment problem. We also show that no prior-independent informativeness ordering based on similar premises exists.
(This abstract was borrowed from another version of this item.)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dean Foster & Sergiu Hart, 2007.
"An Operational Measure of Riskiness,"
843644000000000095, UCLA Department of Economics.
- Olivier Gossner & Abraham Neyman & Penélope Hernández, 2005.
"Optimal Use Of Communication Resources,"
Working Papers. Serie AD
2005-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Olivier Gossner & Pénélope Hernández & Abraham Neyman, 2006. "Optimal use of communication resources," Post-Print halshs-00754118, HAL.
- Olivier Gossner & Penelope Hernandez & Abraham Neyman, 2004. "Optimal Use of Communication Resources," Discussion Paper Series dp377, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
- Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
- Azrieli, Yaron & Lehrer, Ehud, 2008.
"The value of a stochastic information structure,"
Games and Economic Behavior,
Elsevier, vol. 63(2), pages 679-693, July.
- Sergiu Hart, 2011.
"Comparing Risks by Acceptance and Rejection,"
Journal of Political Economy,
University of Chicago Press, vol. 119(4), pages 617 - 638.
- Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, July.
- Susan Athey & Jonathan Levin, 1998.
"The Value of Information In Monotone Decision Problems,"
98-24, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jonathan Levin & Susan Athey, 2001. "The Value of Information in Monotone Decision Problems," Working Papers 01003, Stanford University, Department of Economics.
- Olivier Gossner, 2011. "Simple Bounds on the Value of a Reputation," Econometrica, Econometric Society, vol. 79(5), pages 1627-1641, 09.
When requesting a correction, please mention this item's handle: RePEc:cla:levarc:661465000000000355. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine)
If references are entirely missing, you can add them using this form.