Title

Random Evolving Lotteries and Intrinsic Preference for Information

Author(s)

Faruk Gul Faruk Gul (Princeton University)

Paulo Natenzon Paulo Natenzon (Washington University in St. Louis)

Wolfgang Pesendorfer Wolfgang Pesendorfer (Princeton University)

Abstract

We introduce random evolving lotteries to study preference for non-instrumental information. Each period, the agent enjoys a flow payoff from holding a lottery that will resolve at the terminal date. We provide a representation theorem for non-separable risk consumption preferences and use it to characterize information seeking and its opposite, information aversion. To address applications, we characterize peak-trough utilities that aggregate trajectories of flow utilities linearly but, in addition, put weight on the best (peak) and worst (trough) lotteries along each path. We identify conditions for the ostrich effect, decision makers’ tendency to prefer information after good news to information after bad news. Our model permits savoring (enjoying the gradual arrival of good and sudden arrival of bad news) and dread (disliking the gradual arrival of bad and sudden arrival of good news) and a preference for skewed information

Creation Date

2020-10

Section URL ID

Paper Number

2020-71

URL

http://www.princeton.edu/~pesendor/rel.pdf

File Function

Jel

D11, D44, D83

Keyword(s)

Information; Lotteries; Lottery; Preference

Suppress

false

Series

13