This paper studies the impact of enhanced transparency on risk sharing opportunities in the foreign exchange market and the associated implications for ex ante welfare. Transparency is measured in this model by the informational content of publicly observable signals about exchange rate...

The behavior of equity prices is analyzed in a general equilibrium model where agents have preferences not only over consumption but also (implicitly) over their beliefs. To alleviate cognitive dissonance, investors endogenously choose to ignore information that conflicts too much with their ex...

This paper analyzes the dynamic interactions between the precision of information, technological development, and welfare within an overlapping generations model. More precise information about idiosyncratic production shocks has ambiguous effects on technological progress and welfare, which...

The behavior of asset prices is analyzed in a general equilibrium model where agents not only have preferences over consumption but also (implicitly) over their beliefs. Agents endogenously choose to disregard information contained in a signal if it conflicts with their desired beliefs. In this...

In a Bayesian setting, investments can be risky either because they are opaque, i.e., their payoff-relevant signals are noisy, or because they are fundamentally risky, i.e., the variance of the prior is high. When interest rates are low (high), investors favor opaque (transparent) projects that...

We explore the effect of interest rates on risk taking and find that it depends on the type of risk involved. In a Bayesian setting, investments can be risky either because payoff-relevant signals are noisy or because the dispersion of the prior is high. While both types of risk contribute...

The behavior of asset prices is analyzed in a general equilibrium model where agents not only have preferences over consumption but also (implicitly) over their beliefs. Agents endogenously choose to disregard information contained in a signal if it conflicts with their desired beliefs. In this...

We explore the intuitive idea that more information leads to greater dispersion of posterior beliefs about the expected state of the world. First, we show that two dispersion orders that have been widely used as informativeness criteria do not satisfy the desirable property of ordinality of...