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Random Evolving Lotteries and Intrinsic Preference for Information

Author

Listed:
  • Faruk Gul

    (Princeton University)

  • Paulo Natenzon

    (Washington University in St. Louis)

  • Wolfgang Pesendorfer

    (Princeton University)

Abstract

We introduce random evolving lotteries to study preference for non-instrumental information. Each period, the agent enjoys a flow payoff from holding a lottery that will resolve at the terminal date. We provide a representation theorem for non-separable risk consumption preferences and use it to characterize information seeking and its opposite, information aversion. To address applications, we characterize peak-trough utilities that aggregate trajectories of flow utilities linearly but, in addition, put weight on the best (peak) and worst (trough) lotteries along each path. We identify conditions for the ostrich effect, decision makers’ tendency to prefer information after good news to information after bad news. Our model permits savoring (enjoying the gradual arrival of good and sudden arrival of bad news) and dread (disliking the gradual arrival of bad and sudden arrival of good news) and a preference for skewed information

Suggested Citation

  • Faruk Gul & Paulo Natenzon & Wolfgang Pesendorfer, 2020. "Random Evolving Lotteries and Intrinsic Preference for Information," Working Papers 2020-71, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2020-71
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    More about this item

    Keywords

    Information; Lotteries; Lottery; Preference;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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