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Optimally biased expertise
Ilinov, Pavel ; Matveenko, A. ; Senkov, Maxim ; Starkov, E.
This paper shows that the principal can strictly benefit from delegating a decision to an agent whose opinion differs from that of the principal. We consider a “delegated expertise” problem in which the agent has an advantage in information acquisition relative to the principal, as opposed to having preexisting private information. When the principal is ex ante predisposed towards some action, it is optimal for her to hire an agent who is predisposed towards the same action, but to a smaller extent, since such an agent would acquire more information, which outweighs the bias stemming from misalignment. We show that belief misalignment between an agent and a principal is a viable instrument in delegation, performing on par with contracting and communication in a class of problems.
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An equivalence between rational inattention problems and complete-information conformity games
Ilinov, Pavel ; Jann, Ole
We consider two types of models: (i) a rational inattention problem (as known from the literature) and (ii) a conformity game, in which fully informed players find it costly to deviate from average behavior. We show that these problems are equivalent to each other both from the perspective of the participant and the outside observer: Each individual faces identical trade-offs in both situations, and an observer would not be able to distinguish the two models from the choice data they generate. We also establish when individual behavior in the conformity game maximizes welfare.
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Cognitive Limitations and Behavioral Biases in the Asset Pricing Context
Chavchanidze, Giorgi ; Matějka, Filip (advisor) ; Selezneva, Veronika (referee)
Cognitive Limitations and Behavioral Biases In The Asset Pricing Context MAER Thesis Asbtract Giorgi Chavchanidze I incorporate behavioral and bounded rationality elements into a single asset-pricing frame- work by setting up a two-period consumption-based portfolio selection problem in which a representative agent has biased priors, does not observe the current state and thus has in- complete information about future state probabilities. He forms posterior beliefs using signals that he selects according to the rational inattention discrete choice framework of Matějka and McKay (2015), where the precision of the beliefs depend intuitively on the priors and the cost of information λ. In the case of log-utility, the optimal portfolio is a convex combination of the N portfolios the investor would have selected in each of the N states if they were fully observable, where the weights reflect the subjective posterior likelihood of time-zero states. The posterior beliefs are induced by parsimonious reweighing of priors, where the weights depend on λ, discount factor β and the relative entropies of the future state distributions induced by different time-zero states. Using a two-state example, I demonstrate how the cost of information and biases can be jointly analyzed in this framework and discuss implied...
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Attentional role of quota implementation
Matveenko, Andrei ; Mikhalishchev, S.
This paper introduces a new role of quotas, e.g., labor market quotas: the attentional role. We study the effect of quota implementation on the attention allocation strategy of a rationally inattentive (RI) agent. Our main result is that an RI agent who is forced to fulfill a quota never hires the candidates without acquiring information about them, unlike an unrestricted RI agent\nwho in some cases bases her decision on prior belief only. We also show that in our context quotas are equivalent to other types of affirmative policies such as subsidies and blind resume policy. We show how our results can be used to set a quota level that increases the expected value of the chosen candidate and also decreases statistical discrimination and discrimination in terms of how much attention is paid to each applicant. At the same time, quota implementation could be destructive if the social planner has imperfect information about the parameters of the model.\n
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Rational Inattention in DSGE Model
Vostřák, David ; Malovaná, Simona (advisor) ; Kopečná, Vědunka (referee)
A great amount of available information over the internet makes it impossible for anyone to process it all. In this thesis, we use the rational inattention theory to see how the perceived signals about the exogenous variables would change under different levels of information capacity. Those signals are then applied in the New Keynesian model and corresponding impulse responses are compared with the case of unlimited attention. We found that for some autoregressive processes the differences from the perfect attention case are not very profound while for others the results vary considerably.
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Bayesian persuasion with costly information acquisition
Matysková, Ludmila
A sender who chooses a signal to reveal to a receiver can often influence the receiver’s subsequent actions. Is persuasion more difficult when the receiver has her own sources of information? Does the receiver benefit from having additional information sources? We consider a Bayesian persuasion model extended to a receiver’s endogenous acquisition of information under an entropy-based cost commonly used in rational inattention. A sender’s optimal signal can be computed from standard Bayesian persuasion subject to an additional constraint: the receiver never gathers her own costly information. We further determine a finite set of the sender’s signals satisfying the additional constraint in which some optimal signal must be contained. The set is characterized by linear conditions using the receiver’s utility and information cost parameters. The new method is also applicable to a standard Bayesian persuasion model and can simplify, sometimes dramatically, the search for a sender’s optimal signal (as opposed to a standard concavification technique used to solve these models). We show that the ‘threat’ of additional learning weakly decreases the sender’s expected equilibrium payoff. However, the outcome can be worse not only for the sender, but also for the receiver.\n \n
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Rational inattention to discrete choices: a new foundation for the multinomial logit model
Matějka, Filip ; McKay, A.
Often, individuals must choose among discrete alternatives with imperfect information about their values, such as selecting a job candidate, a vehicle or a university. Before choosing, they may have an opportunity to study the options, but doing so is costly. This costly information acquisition creates new choices such as the number of and types of questions to ask the job candidates. We model these situations using the tools of the rational inattention approach to information frictions (Sims, 2003).
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