Irreversible investment and information acquisition under uncertainty

We examine the agent’s investment level in a project with potential high-risk consequences. In order to reduce uncertainty, the agent may acquire costly information. We first find that both a very optimistic agent (who thinks that the damage has low probability to occur) and a very pessimistic agent never acquire information because information is not valuable for them. Yet, with information, the agent’s investment is higher than the one he would make without. We then show that information acquisition may be motivated by a lower cost of information acquisition, a lower damage cost, higher marginal revenue and better information precision.