The Logarithmic Investor's Decision to Acquire Costly Information

Abstract

This paper explores the relationship between the decision to purchase a costly information system and the wealth of an investor with a logarithmic utility function, where the information system may provide information concerning the payoffs from risky investments. It is shown, for the logarithmic investor, that (a) there is a wealth “break-even point” below which it is suboptimal to purchase an information system at a fixed cost, and (b) the amount the investor would be willing to pay for access to the information system is a linearly increasing function of his wealth.