Information Processing and Limited Liability
Bartosz Mackowiak, Mirko Wiederholt
American Economic Review · 2012 · Volume 102 · Issue 3
Abstract
Decision-makers often face limited liability and thus know that their loss will be bounded. We study how limited liability affects the behavior of an agent who chooses how much information to acquire and process in order to take a good decision. We find that an agent facing limited liability processes less information than an agent with unlimited liability. The informational gap between the two agents is larger in bad times than in good times and when information is more costly to process.
Keywords
Search, Learning, Information and Knowledge, Communication, Belief, Consumer Economics: Theory, Criteria for Decision-Making under Risk and Uncertainty
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