Driving Force in Investment

TL;DR

This paper explores how investors with limited information optimize their investment strategies by balancing diversification and effort to acquire information, affecting asset selection in financial markets.

Contribution

It introduces models where imperfect knowledge influences investment decisions, highlighting the trade-off between diversification and information-gathering effort.

Findings

Optimal strategies involve balancing diversification and information effort.

Limited information leads to different asset selection dynamics.

The model demonstrates how information acquisition impacts market behavior.

Abstract

We study investment strategy in different models of financial markets, where the investors cannot reach a perfect knowledge about available assets. The investor spends a certain effort to get information; this allows him to better choose the investment strategy, and puts a selective pressure upon assets. The best strategy is then a compromise between diversification and effort to get information.