The Diversity of Information Acquisition Strategies in a Noisy REE Model with a Common Signal and Independent Signals

Abstract

In this paper, I study a noisy REE model of asset market with two types of costly private signals: a common signal with an identical error term and independent signals with dispersed error terms. Studying investors' endogenous information acquisition, I show that (i) investors observing the common signal and those observing the independent signals are likely to coexist in the equilibrium, (ii) at most, three equilibrium strategies can coexist, and (iii) when the equilibrium has three strategies, the evolutionary learning dynamics of investors can exhibit detours and cyclical oscillation.