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Information Acquisition in the Presence of Asymmetries in Risk Aversion

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  • Giannikos, Christos I.

Abstract

In the presence of two groups of agents, each exhibiting different degrees of risk aversion, we study a simple model of information acquisition. We find the unique equilibrium, which is characterized by a unique cutoff that separates the investors in two endogenously determined groups (one choosing optimally to be informed, the other uninformed) if all are ordered along the real line by degree of risk aversion. Furthermore, while the informativeness of the price system does not change with the share of high-risk aversion investors in the population, it does change with the degree of risk aversion (of either group and even if that group as a whole decides optimally to stay uninformed), the cost of information and the quality of information.

Suggested Citation

  • Giannikos, Christos I., 2012. "Information Acquisition in the Presence of Asymmetries in Risk Aversion," The Journal of Economic Asymmetries, Elsevier, vol. 9(2), pages 1-9.
    • Handle: RePEc:eee:joecas:v:9:y:2012:i:2:p:1-9
    DOI: 10.1016/j.jeca.2012.02.001
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    References listed on IDEAS

    as
    1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    2. repec:bla:jfinan:v:59:y:2004:i:4:p:1553-1583 is not listed on IDEAS
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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