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The cost of information

Pomatto, Luciano and Strack, Philipp and Tamuz, Omer (2019) The cost of information. . (Unpublished) http://resolver.caltech.edu/CaltechAUTHORS:20190404-161816718

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Abstract

We develop an axiomatic theory of information acquisition that captures the idea of constant marginal costs in information production: the cost of generating two independent signals is the sum of their costs, and generating a signal with probability half costs half its original cost. Together with a monotonicity and a continuity conditions, these axioms determine the cost of a signal up to a vector of parameters. These parameters have a clear economic interpretation and determine the difficulty of distinguishing states. We argue that this cost function is a versatile modeling tool that leads to more realistic predictions than mutual information.


Item Type:Report or Paper (Working Paper)
Related URLs:
URLURL TypeDescription
https://arxiv.org/abs/1812.04211arXivDiscussion Paper
ORCID:
AuthorORCID
Pomatto, Luciano0000-0002-4331-8436
Tamuz, Omer0000-0002-0111-0418
Additional Information:We thank Kim Border, Ben Brooks, Simone Cerreia-Vioglio, Tommaso Denti, Federico Echenique, Drew Fudenberg, Ed Green, Adam Kapor, Massimo Marinacci, Jeffrey Mensch, Filip Matejka, Stephen Morris, and Doron Ravid for their comments. All errors and omissions are our own. Omer Tamuz was supported by a grant from the Simons Foundation (#419427).
Funders:
Funding AgencyGrant Number
Simons Foundation419427
Record Number:CaltechAUTHORS:20190404-161816718
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20190404-161816718
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:94488
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:04 Apr 2019 23:26
Last Modified:04 Apr 2019 23:26

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