Contact
Department of Economics
London School of Economics
Houghton Street
London
WC2A 2AE
Email: a-DOT-ellis-AT-lse-DOT-ac-DOT-uk
UK Phone: +44(0)20-7955-6868
US Phone:+1(919)889-8298
Curriculum Vitae (pdf)
Research Interests
Microeconomic Theory
Decision Theory
Political Economy
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: I consider static, incomplete information games where players may not be ambiguity neutral. Every player is one of a finite set of types, and each knows her own type but not that of the other players. Ex-ante, players differ only in their taste for outcomes. If every player is dynamically consistent with respect to her own information structure, respects consequentialism, and has at least two possible types, then the function representing beliefs must be additive on types.
Abstract: This paper analyzes the implications of advertising in a model where consumers optimally allocate costly attention to information about match-specific firm quality. Consumers easily observe price but have a cost of processing information about quality, and advertisements decrease the marginal cost of acquiring this information. Firms choose both a price and an advertising level. An increase in advertising increases both own demand and total industry demand but has positive (respectively, negative) spillovers across firms with a low (respectively, high) aggregate level of advertising. In equilibrium, a small exogenous decrease in the cost of advertising has a positive impact on equilibrium advertising, demand, and price but ambiguous effects on equilibrium profit, welfare, and consumer surplus.