We develop an axiomatic theory of information acquisition that captures the idea of constant marginal costs in information production: the cost of generating two independent signals is the sum of their costs, and generating a signal with probability half costs half its original cost. Together with a monotonicity and a continuity conditions, these axioms determine the cost of a signal up to a vector of parameters.These parameters have a clear economic interpretation and determine the difficulty of distinguishing states. We argue that this cost function is a versatile modeling tool that leads to more realistic predictions than mutual information.

Please sign up for meetings below:
docs.google.com/spreadsheets/d/1r32GYl_eL8bInJ04hTBz1ezVGXB8YitXA3om1Yjoh5I/edit#gid=0

Link to paper:
tamuz.caltech.edu/papers/cost_of_information.pdf