Article2019

Information Aversion

84 citations0/0 files storedJournal of Political Economy

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Decision-Making and Behavioral Economics Financial Markets and Investment Strategies Financial Literacy, Pension, Retirement Analysis

Abstract

Information aversion—a preference-based fear of news flows—has rich implications for decisions involving information and risk-taking. It can explain key empirical patterns on how households pay attention to savings, namely, that investors observe their portfolios infrequently, particularly when stock prices are low or volatile. Receiving state-dependent alerts following sharp market downturns, such as during the financial crisis of 2008, improves welfare. Information-averse investors display an ostrich behavior: overhearing negative news prompts more inattention. Their fear of frequent news encourages them to hold undiversified portfolios.

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References

1979Prospect Theory: An Analysis of Decision under Risk 1992Advances in prospect theory: Cumulative representation of uncertainty 1969Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case 1989Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework 1988Permanent and Temporary Components of Stock Prices 1995Myopic Loss Aversion and the Equity Premium Puzzle 2006Household Finance 1978Temporal Resolution of Uncertainty and Dynamic Choice Theory

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2020Where Has All the Data Gone?2012Curiosity, Information Gaps, and the Utility of Knowledge 2022How Effective Is (More) Money? Randomizing Unconditional Cash Transfer Amounts in the US 2019Macroeconomic Tail Risks and Asset Prices 2021Testing the effectiveness of consumer financial disclosure: Experimental evidence from savings accounts 2024Horizon-Dependent Risk Aversion and the Timing and Pricing of Uncertainty

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