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Information Aversion

Author

Listed:
  • Valentin Haddad

    (Princeton University)

  • Marianne Andries

    (Toulouse School of Economics)

Abstract

We propose a theory of inattention solely based on preferences, absent any cognitive limitations, or external costs of acquiring information. Under disappointment aversion, information decisions and risk attitude are intertwined, and agents are intrinsically information averse. We illustrate this link between attitude towards risk and information in a standard portfolio problem. We show agents never choose to receive information continuously in a diffusive environment: they optimally acquire information at infrequent intervals only. In contrast to existing theories, we show the optimal frequency of information acquisition can decrease when risk increases, consistent with empirical evidence. We show information aversion tends to lower significantly the benefits of diversification, leads to a joint evaluation of project gains and their information process, as well as creates scope for the creation of information providers. These results suggest our approach can explain many observed features of decision under uncertainty.

Suggested Citation

  • Valentin Haddad & Marianne Andries, 2014. "Information Aversion," 2014 Meeting Papers 1091, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:1091
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    References listed on IDEAS

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    Cited by:

    1. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    2. Thomas M. Eisenbach & Martin C. Schmalz, 2015. "Anxiety and pro-cyclical risk taking with Bayesian agents," Staff Reports 711, Federal Reserve Bank of New York, revised 01 Dec 2015.

    More about this item

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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