Information Acquisition in Auctions

OUR AIM IN THIS PAPER is to study the incentives to acquire information. We consider decision problems where the payoff has the single-crossing property and signals are affiliated with the unknown parameter. We introduce the notion of risk-sensitiity, and establish that the value of information is higher in decision problems that are more risk-sensitive. We apply this result to auctions: we are able to show that a first price auction induces more information acquisition than a second price auction. Consider a decision maker choosing an action a to maximize the expected value of a Ž. payoff function u , a . The decision maker does not observe , which he regards as a random variable V. Instead, he observes the realization of a random variable X ,a signal which conveys information about .W eassume that the decision maker can make X more informative, at a cost. Making X more informative increases the expected payoff. We analyze the returns to making X more informative. Ž. We focus on problems where X and V are affiliated, and u , a has the weak Ž. Ž .