Learning before trading: on the inefficiency of ignoring free information

Ravid, Doron, Roesler, Anne-Katrin and Szentes, Balázs (2022) Learning before trading: on the inefficiency of ignoring free information. Journal of Economic Theory, 130 (2). pp. 346-387. ISSN 0022-0531

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Abstract

This paper analyzes a bilateral trade model in which the buyer’s valuation for the object is uncertain and she can privately purchase any signal about her valuation. The seller makes a take-it-or-leave-it offer to the buyer. The cost of a signal is smooth and increasing in informativeness. We characterize the set of equilibria when learning is free, and show they are strongly Pareto ranked. Our main result is that when learning is costly but the cost of information goes to zero, equilibria converge to the worst free-learning equilibrium.

Item Type:	Article
Official URL:	https://www.sciencedirect.com/journal/journal-of-e...
Additional Information:	© 2021 Elsevier Inc
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
Date Deposited:	09 Sep 2021 16:24
Last Modified:	16 Nov 2024 05:15
URI:	http://eprints.lse.ac.uk/id/eprint/111892

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