TITLE:
Effectiveness of Signal Precision and Risky Choice
AUTHORS:
Weiqi Liu, Huan Liu
KEYWORDS:
Risk Choice, Signal Precision, Rational Expectation, Information Acquisition
JOURNAL NAME:
Theoretical Economics Letters,
Vol.11 No.2,
April
29,
2021
ABSTRACT: Higher signal precision helps to predict returns
more accurately. But higher signal precision requires higher more costs and
longer time. The acquisition of higher precision signals has two opposite
effects for investors. First, the higher
precision helps with return forecast. Second, the longer processing time
is a disadvantage for decision making. We build a rational expected model under
the assumption that the longer processing time takes, the higher the signal
precision. The results show that higher signal precision is not always better after considering signal processing time.
There is an optimal signal waiting time for investors.