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To Buy Or Not To Buy: Why do People Buy too Much Information?

By Carlo Kraemer and Martin Weber


Previous studies have shown that individuals exhibit a tendency to acquire an excessive amount of private information if information can only be communicated through a small and discrete action space. In this experiment we investigate demand for information when the action space is continuous. Participants sequentially assess their subjective probability which one out of two apriori equally likely states occurred at the beginning of a game. They observe the probability assessment of their predecessor and can acquire additional private information at a fixed price. Participants interact with either human or computer simulated players. We find that individuals in general acquire too many signals and that behavior does not depend on the rationality of their counterparts. A random utility model is able to explain most of the observed behavior

Year: 2001
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