Cabrales, Antonio, Gossner, Olivier 
ORCID: 0000-0003-3950-0208 and Serrano, Roberto
(2013)
Entropy and the value of information for investors.
American Economic Review, 103 (1).
pp. 360-377.
ISSN 0002-8282
Abstract
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.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.aeaweb.org/aer/index.php |
| Additional Information: | © 2013 by the American Economic Association |
| Divisions: | Mathematics |
| Subjects: | H Social Sciences > HB Economic Theory |
| Date Deposited: | 20 Feb 2013 14:37 |
| Last Modified: | 12 Dec 2024 00:21 |
| Projects: | CONSOLIDER-INGENIO 2010 CSD2006-0016, ECO2009–10531 |
| Funders: | Ministry of the Economy and Competitiveness |
| URI: | http://eprints.lse.ac.uk/id/eprint/48772 |
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