Department of Economics
270 Bay State Road
Boston, MA 02215
Curriculum Vitae (pdf)
Abstract: This paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information. The main result provides properties of the agent's conditional choices that are necessary and sufficient for the following as if interpretation: she chooses both her coarsening and her actions by constrained maximization of an underlying subjective expected utility preference relation. Observing these choices permits unique identification of the agent's utility index, cognitive constraint and prior (the last under a suitable richness condition). An application considers a market in which strategic firms offer differentiated products. If the consumer's information concerns firms' quality, then equilibrium consumer surplus may be higher with an optimally inattentive consumer than with one who processes all available information.
Abstract: The Condorcet Jury Theorem states that given subjective expected utility maximization and common values, the equilibrium probability that the correct candidate wins goes to one as the size of the electorate goes to infinity. This paper studies strategic voting when voters have pure common values but may be ambiguity averse -- exhibit Ellsberg-type behavior -- as modeled by maxmin expected utility preferences. It provides sufficient conditions so that the equilibrium probability of the correct candidate winning the election is bounded above by one half in at least one state. As a consequence, there is no equilibrium in which information aggregates.
Abstract: This paper analyzes the implications of advertising in a model where consumers are optimally inattentive. Firms compete by choosing both prices and advertising levels. Consumers are inattentive to information about quality but not price, and advertising increases consumer capacity for attention. In the absence of advertising, an increase in capacity for attention increases equilibrium profit. Yet under general conditions, equilibrium consumer surplus is first increasing then decreasing in consumer capacity for attention. On the one hand, a higher capacity for attention implies that more information is processed by each consumer, which raises the likelihood that a high quality good is purchased. On the other hand, since information differentiates products, it also decreases elasticity of demand and thus leads to an increased price. When firms are permitted to advertise, advertising increases both equilibrium price and profit. Moreover, advertising by one firm has a positive effect on the demand of all firms.