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Does free information provision crowd out costly information acquisition? It’s a matter of timing

Author

Listed:
  • Diego Aycinena

    (Department of Economics, Universidad del Rosario
    Economic Science Institute, Chapman University)

  • Alexander Elbittar

    (Department of Economics, CIDE)

  • Andrei Gomberg

    (Department of Economics, ITAM
    gomberg@itam.mx)

  • Lucas Rentschler

    (Utah State University
    lucas.rentschler@usu.edu)

Abstract
Conventional wisdom suggests that promising an agent free information would crowd out costly information acquisition. We theoretically demonstrate that this intuition only holds as a knife-edge case where priors are symmetric. For asymmetric priors, agents are predicted to increase their information acquisition when promised free information in the future. We test in the lab whether such crowding out occurs for both symmetric and asymmetric priors. We find theoretical support for the predictions: when priors are asymmetric, the promise of future “free†information induces subjects to acquire costly information which they would not be acquiring otherwise.

Suggested Citation

  • Diego Aycinena & Alexander Elbittar & Andrei Gomberg & Lucas Rentschler, 2020. "Does free information provision crowd out costly information acquisition? It’s a matter of timing," Working Papers 20-26, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:20-26
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/321/
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    More about this item

    Keywords

    Information Acquisition; Rational Ignorance; Experiments;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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