When are signals complements or substitutes? Articles uri icon

publication date

  • January 2013

start page

  • 165

end page

  • 195

issue

  • 1

volume

  • 148

International Standard Serial Number (ISSN)

  • 0022-0531

Electronic International Standard Serial Number (EISSN)

  • 1095-7235

abstract

  • The paper introduces a notion of complementarity (substitutability) of two signals which requires that in all decision problems each signal becomes more (less) valuable when the other signal becomes available. We provide a general characterization which relates complementarity and substitutability to a Blackwell comparison of two auxiliary signals. In a setting with a binary state space and binary signals, we find an explicit characterization that permits an intuitive interpretation of complementarity and substitutability. We demonstrate how these conditions extend to more general settings. We also illustrate the implications of our concepts for three economic applications: information disclosure in auctions, information aggregation through voting, and polarization of beliefs.

keywords

  • complementarity; substitutability; value of information; blackwell ordering