Information Acquisition, Efficiency, and Non-Fundamental Volatility / Benjamin M. Hébert, Jennifer La'O.

Format:

Book

Author/Creator:

Hébert, Benjamin M.

Contributor:

National Bureau of Economic Research.

La'O, Jennifer.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26771.

NBER working paper series no. w26771

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We analyze non-fundamental volatility and efficiency in large games featuring strategic interaction and endogenous information acquisition. We adopt the rational inattention approach to information acquisition but generalize to a large class of information costs. Agents can learn about exogenous states as well as endogenous aggregate actions. We study how properties of information costs relate to properties of equilibria. We provide necessary and sufficient conditions to guarantee zero non-fundamental volatility in equilibrium and another set of necessary and sufficient conditions to guarantee constrained efficient equilibria. Mutual information, the cost typically assumed in rational inattention models, precludes non-fundamental volatility and imposes efficiency.

Notes:

Print version record

February 2020.