City Research Online

The value of information in risk-sharing environments with unawareness

Galanis, S. ORCID: 0000-0003-4286-7449 (2016). The value of information in risk-sharing environments with unawareness. Games and Economic Behavior, 97, pp. 1-18. doi: 10.1016/j.geb.2016.03.001

Abstract

The value of information is examined in a risk-sharing environment with unawareness and complete markets. Information and awareness are symmetric among agents, who have a clear understanding of their actions and deterministic payoffs. We show with examples that public information can make some agents strictly better off at the expense of others, contrasting the standard results of Hirshleifer (1971) and Schlee (2001) that the value of public information is negative for all when risk averse agents are fully insured. We identify the source of this problem to be that, as awareness varies across states, it creates an "awareness signal" that the agents misunderstand and treat asymmetrically. As a result, risk-sharing opportunities that are available when this signal is not used, vanish when it is used. We identify a property, Conditional Independence, which we show is sufficient for the value of public information to be negative for all.

Publication Type: Article
Additional Information: © Elsevier 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Unawareness, Value of information, Risk-sharing, Uncertainty, Knowledge, Bounded perception, Awareness
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
Departments: School of Arts & Social Sciences > Economics
URI: http://openaccess.city.ac.uk/id/eprint/21286
[img]
Preview
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Download (4MB) | Preview

Export

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login