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THE ANALYTICS OF UNCERTAINTY AND INFORMATION -- ‘AN EXPOSITORY SUR} by J. Hirehleifer and John G. Riley University of California, Los Angeles * "A slightly condensed version of this paper is forthcoming in the Journal of Economic Literature. UCLA Department of Economics Working Paper #159 July 1979 The Analytics of Uncertainty and Information -- An Expository Survey by J. HIRSHLEIFER and JOHN G, RILEY University of California, Los Angeles ‘Among the very large number of people who provided comments and suggestions, we would like to thank most especially Fritz Machlup, Robert A. Jones, Mark Perlman, and Richard J. Zeckhauser. J. Hirshleifer's work on this paper was supported in part by National. Science Foundation grant No. SOC75-15697 and by a grant from the Foundation for Research in Economics and Education. John G. Riley's work was supported in part by National Science Foundation grant No. SOC79-07573. Part 1 CONTENTS: ‘THE ECONOMICS OF UNCERTAINTY 1.1 Decision Under Uncertainty 1.1.1 The Menu of Acts 1.1.2 The Probability Function 1.1.3 The Consequence Function 1.1.4 The Utility Function and the Expected-Utility Rule 1.1.5 Risk-Aversion, and the Risk-Bearing Optimum of the Individual 1.2 Market Equilibrium Under Uncertainty haring 1.2.2 Insurance 1.2.3 Complete and Incomplete Market Regimes, the Stock— market Economy, and Optimal Production Decisions 1.2.4 Other Applications ‘THE ECONOMICS OF INFORMATION . 2.1 Informational Decision-Making 2.1.1 Acquisition of Information 2.1.2 Other Informational Activities 2.1.3 Emergent Information and the Value of Flexibility 2.2 Public Information and Market Equilibrium 2.2.1 Equilibrium in Complete versus Incomplete Market Regimes 2.2.2 Speculation 2.3 The Economics of Research and Invention 2.4 Informational Advantage and Market Revelation of Information 2.4.1 Signalling 2.4.2 Informational Inferences from Market Prices 2.5 Rational Expectations and Informational Efficiency References 10 a 15 23 23 24 33 37 39 39 39 49 50 52 52 39 61 66 67 a 5 81

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