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Information Aversion

Author

Listed:
  • Valentin Haddad

    (Princeton University)

  • Marianne Andries

    (Toulouse School of Economics)

Abstract

We propose a theory of inattention solely based on preferences, absent any cognitive limitations, or external costs of acquiring information. Under disappointment aversion, information decisions and risk attitude are intertwined, and agents are intrinsically information averse. We illustrate this link between attitude towards risk and information in a standard portfolio problem. We show agents never choose to receive information continuously in a diffusive environment: they optimally acquire information at infrequent intervals only. In contrast to existing theories, we show the optimal frequency of information acquisition can decrease when risk increases, consistent with empirical evidence. We show information aversion tends to lower significantly the benefits of diversification, leads to a joint evaluation of project gains and their information process, as well as creates scope for the creation of information providers. These results suggest our approach can explain many observed features of decision under uncertainty.

Suggested Citation

  • Valentin Haddad & Marianne Andries, 2014. "Information Aversion," 2014 Meeting Papers 1091, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:1091
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    Cited by:

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    2. Russell Golman & George Loewenstein & Andras Molnar & Silvia Saccardo, 2022. "The Demand for, and Avoidance of, Information," Management Science, INFORMS, vol. 68(9), pages 6454-6476, September.
    3. Maryam Farboodi & Adrien Matray & Laura Veldkamp & Venky Venkateswaran, 2022. "Where Has All the Data Gone?," The Review of Financial Studies, Society for Financial Studies, vol. 35(7), pages 3101-3138.
    4. Umar, Tarik, 2022. "Complexity aversion when SeekingAlpha," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    5. Maryam Farboodi & Adrien Matray & Laura Veldkamp & Venky Venkateswaran, 2020. "Where Has All the Data Gone?," NBER Working Papers 26927, National Bureau of Economic Research, Inc.
    6. Qadan, Mahmoud & Zoua’bi, Maher, 2019. "Financial attention and the demand for information," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 82(C).
    7. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    8. Cujean, Julien & Bustamante, Maria Cecilia & Frésard, Laurent, 2019. "Knowledge Cycles and Corporate Investment," CEPR Discussion Papers 14152, C.E.P.R. Discussion Papers.
    9. Aharon, David Y. & Qadan, Mahmoud, 2018. "What drives the demand for information in the commodity market?," Resources Policy, Elsevier, vol. 59(C), pages 532-543.
    10. Adams, Paul & Hunt, Stefan & Palmer, Christopher & Zaliauskas, Redis, 2021. "Testing the effectiveness of consumer financial disclosure: Experimental evidence from savings accounts," Journal of Financial Economics, Elsevier, vol. 141(1), pages 122-147.
    11. Moritz Mosenhauer, 2022. "Salience and management‐by‐exception," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3685-3697, December.
    12. Chadi, Adrian & Homolka, Konstantin, 2022. "Little Lies and Blind Eyes – Experimental Evidence on Cheating and Task Performance in Work Groups," Journal of Economic Behavior & Organization, Elsevier, vol. 199(C), pages 122-159.
    13. Daniele Pennesi, 2020. "Identity and information acquisition," Carlo Alberto Notebooks 610, Collegio Carlo Alberto, revised 2021.
    14. Thomas M. Eisenbach & Martin C. Schmalz, 2015. "Anxiety and pro-cyclical risk taking with Bayesian agents," Staff Reports 711, Federal Reserve Bank of New York.
    15. Lisa Bruttel & Werner Güth & Ralph Hertwig & Andreas Orland, 2020. "Do people harness deliberate ignorance to avoid envy and its detrimental effects?," CEPA Discussion Papers 17, Center for Economic Policy Analysis.
    16. Kops, Christopher & Pasichnichenko, Illia, 2023. "Testing negative value of information and ambiguity aversion," Journal of Economic Theory, Elsevier, vol. 213(C).
    17. Andries, Marianne & Bianchi, Milo & Huynh, Karen & Pouget, Sébastien, 2024. "Return Predictability, Expectations, and Investment: Experimental Evidence," TSE Working Papers 1561, Toulouse School of Economics (TSE).
    18. Edika Quispe-Torreblanca & John Gathergood & George Loewenstein & Neil Stewart, 2020. "Attention Utility: Evidence from Individual Investors," CESifo Working Paper Series 8091, CESifo.
    19. Yaoyao Wu, 2022. "Disappointment aversion in tournaments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(1), pages 26-30, January.

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    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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