The Cost of Information
ECONOMICS AND DECISION SCIENCES DEPARTMENT
Speaker : Philipp Strack (Yale University)
HEC Campus - Building T - Room T015
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.