Clarity Trumps Content: An Experiment on Information Acquisition in Beauty Contests

Abstract

We study agents' information acquisition decisions in a beauty contest game when they can access multiple information sources with different content and clarity. Each information source sends a signal with a common noise, and each agent observes this signal with an additional idiosyncratic noise. An information source has high content if it has low common noise and high clarity if it has low idiosyncratic noise. Theory predicts that under strong beauty contest incentives, agents ignore information from a source with high content if it has low clarity. Instead, they acquire equally costly information from a source with higher clarity despite its lower content. Our experimental results confirm the directional predictions; however the under-acquisition of the less-clear source is more severe than theoretical predictions. A source with low clarity is ignored even when its cost is negligible. Our findings provide a new strategic perspective to explain the differential impacts of content and clarity in corporate disclosures.