Does free information provision crowd out costly information acquisition? It’s a matter of timing
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Conventional wisdom suggests that promising an agent free information would crowd out costly information acquisition. We theoretically demonstrate that this intuition only holds as a knife-edge case where priors are symmetric. For asymmetric priors, agents are predicted to increase their information acquisition when promised free information in the future. We test in the lab whether such crowding out occurs for both symmetric and asymmetric priors. We find theoretical support for the predictions: when priors are asymmetric, the promise of future “free” information induces subjects to acquire costly information which they would not be acquiring otherwise.