Information acquisition and learning from prices over the business cycle

We study firms ’ incentives to acquire costly information in booms and recessions to understand the role of endogenous information in explain-ing business cycles. We find that when the economy has been in a boom in the previous period, and firms enter the current period with an optimistic belief, the incentive to acquire information is weaker than when the econ-omy has been in a recession and firms share a pessimistic belief. How-ever, the price system, by transmitting information from informed to unin-formed firms, dampens information demand and moderates the cyclical-ity of the aggregate learning outcome. Even though learning from equilib-rium prices acts to stabilize fluctuations by discouraging information ac-quisition, it can be welfare-enhancing to make information prohibitively costly to obtain