The value of information in risk-sharing environments with unawareness
The value of information in risk-sharing environments with unawareness
The value of information is examined in a risk-sharing environment with unawareness and complete markets. Information and awareness are symmetric among agents, who have a clear understanding of their actions and deterministic payoffs. We show with examples that public information can make some agents strictly better off at the expense of others, contrasting the standard results of Hirshleifer (1971) and Schlee (2001) that the value of public information is negative for all when risk averse agents are fully insured. We identify the source of this problem to be that, as awareness varies across states, it creates an “awareness signal” that the agents misunderstand and treat asymmetrically. As a result, risk-sharing opportunities that are available when this signal is not used, vanish when it is used. We identify a property, Conditional Independence, which we show is sufficient for the value of public information to be negative for all.
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Galanis, Spyros
66c2b7af-6f28-4319-be60-787796b4054c
1 May 2016
Galanis, Spyros
66c2b7af-6f28-4319-be60-787796b4054c
Galanis, Spyros
(2016)
The value of information in risk-sharing environments with unawareness.
Games and Economic Behavior, 97, .
(doi:10.1016/j.geb.2016.03.001).
Abstract
The value of information is examined in a risk-sharing environment with unawareness and complete markets. Information and awareness are symmetric among agents, who have a clear understanding of their actions and deterministic payoffs. We show with examples that public information can make some agents strictly better off at the expense of others, contrasting the standard results of Hirshleifer (1971) and Schlee (2001) that the value of public information is negative for all when risk averse agents are fully insured. We identify the source of this problem to be that, as awareness varies across states, it creates an “awareness signal” that the agents misunderstand and treat asymmetrically. As a result, risk-sharing opportunities that are available when this signal is not used, vanish when it is used. We identify a property, Conditional Independence, which we show is sufficient for the value of public information to be negative for all.
Text
multi_agent_value_of_info.pdf
- Accepted Manuscript
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Accepted/In Press date: 18 March 2016
e-pub ahead of print date: 22 March 2016
Published date: 1 May 2016
Organisations:
Economics
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Local EPrints ID: 390646
URI: http://eprints.soton.ac.uk/id/eprint/390646
ISSN: 0899-8256
PURE UUID: 06c65251-e269-4bab-b191-cf41505a5efb
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Date deposited: 06 Apr 2016 09:39
Last modified: 15 Mar 2024 05:28
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Author:
Spyros Galanis
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