Conventional wisdom suggests that promising free information to an agent would crowd out costly information acquisition. We theoretically demonstrate that this intuition only holds as a knife-edge case in which priors are symmetric. Indeed, when priors are asymmetric, a promise of free information in the future induces agents to increase information acquisition. In the lab, we test whether such crowding out occurs for both symmetric and asymmetric priors. Our results are qualitatively in line with the predictions: When priors are asymmetric, the promise of future free information induces subjects to acquire more costly information.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics