Spoiled for choice

Variety and efficiency in markets with incomplete information

Douglas Gale

    Research output: Contribution to journalArticle

    Abstract

    When the qualities of securities are uncertain, investors have an incentive to acquire information before they trade. Too much choice may lead to inefficiency, because it forces investors to engage in excessive search for the information they need. Similarly, if they rely on the information revealed by other investors, the existence of too much choice may again lead to inefficiency, because investors ignore the external effects of their search behaviour. In both cases, restricting the set of securities available may be Pareto- or welfare-improving. These ideas are applied to the regulation of financial markets.

    Original languageEnglish (US)
    Pages (from-to)41-67
    Number of pages27
    JournalResearch in Economics
    Volume51
    Issue number1
    StatePublished - Apr 1997

    Fingerprint

    Investors
    Incomplete information
    Inefficiency
    Information needs
    Search behavior
    Pareto
    Incentives
    External effects
    Financial markets

    Keywords

    • Efficiency
    • Financial markets
    • Information
    • Search

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Spoiled for choice : Variety and efficiency in markets with incomplete information. / Gale, Douglas.

    In: Research in Economics, Vol. 51, No. 1, 04.1997, p. 41-67.

    Research output: Contribution to journalArticle

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