Les Cahiers de Recherche - HEC Paris
Does it pay to voluntarily disclose private information?
Abstract: This paper studies how strategic interaction between
players can influence their decisions as to whether to acquire information
and whether to reveal their private information to others. We show how a
player can increase his utility by disclosing part of his private
information, when such disclosure stimulates others to produce new
information that is useful for him. We derive conditions for information
disclosure to be the equilibrium strategy and solve for the equilibrium.
When both traders are risk-neutral they each increase their profits by
specializing in the types of information they acquire. This specialization
encourages the traders to share information directly or through trades.
When the traders have different risk preferences, the more risk averse
trader may prefer to reveal his less precise information in order to
stimulate information production by less risk averse traders. This strategy
can give him higher utility than if he merely acquired information by
Keywords: information acquisition; market microstructure; private information; (follow links to similar papers)
JEL-Codes: D82; D83; G12; G14; (follow links to similar papers)
61 pages, June 1, 2001
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Design Joakim Ekebom