Information acquisition, price informativeness and welfare
Rahi, R.
& Zigrand, J.
(2018).
Information acquisition, price informativeness and welfare.
(Systemic Risk Centre Discussion Papers 77).
Systemic Risk Centre, The London School of Economics and Political Science.
& Zigrand, J.
(2018).
Information acquisition, price informativeness and welfare.
(Systemic Risk Centre Discussion Papers 77).
Systemic Risk Centre, The London School of Economics and Political Science.
We consider the market for a risky asset with heterogeneous valuations. Private information that agents have about their own valuation is reflected in the equilibrium price. We study the learning externalities that arise in this setting, and in particular their implications for price informativeness and welfare. When private signals are noisy, so that agents rely more on the information conveyed by prices, discouraging information gathering may be Pareto improving. Complementarities in information acquisition can lead to multiple equilibria.