Assistant Professor of Economics
Department of Economics
London School of Economics
UK Phone: +44(0)20-7955-6868
Curriculum Vitae (pdf)
Foundations for Optimal Inattention (2017). Journal of Economic Theory, accepted.
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.
Correlation Misperception in Choice, with M. Piccione (2017). American Economic Review, 107(4):1264-92.
We present a decision-theoretic analysis of an agent's understanding of the
interdependencies in her choices. We provide the foundations for a simple and
flexible model that allows the misperception of correlated risks. We introduce
a framework in which the decision maker chooses a portfolio of assets among
which she may misperceive the joint returns, and present simple axioms
equivalent to a representation in which she attaches a probability to each
possible joint distribution over returns and then maximizes subjective
expected utility using her (possibly misspecified) beliefs.
An earlier version, "Complexity, Correlation, and Choice", with more results.
Condorcet Meets Ellsberg (2016). Theoretical Economics, 11(3):865-95.
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.
An earlier version with Poisson population can be found here.
Equilibrium Securitization with Diverse Beliefs, with M. Piccione and S. Zhang
We study a general equilibrium model in which securitization emerges as a consequence of the traders' diverse beliefs about the return of a risky asset. A firm can issue and sell any feasible, monotone securities backed by a risky financial asset to risk neutral traders. Prices and characteristics of securities are determined endogenously in general equilibrium. We provide a simple characterization of the equilibrium securities, and show existence and essential uniqueness of equilibrium. Under a weak restriction on the traders' beliefs, our model delivers tranching as an equilibrium outcome. We extend the model to consider pooling of assets backing the securities, the dynamics of securitization and risk averse traders.
A Regional Approach to Framing and Salience, with Y. Masatlioglu
[pdf coming soon]
Abstract. We propose a novel regional preference model (RPM) where the framing of the decision problem affects the salience of a product through the region in which it lies, and the product's salience affects the agent's evaluation of it. RPM accounts for diverse sets of evidence that are anomalous from the traditional rational perspective. Our general framework encompasses the loss aversion Tversky and Kahneman (1991), the salient thinking model of Bordalo et al (2013), and the status quo bias model of Masatlioglu and Ok (2005). RPM fulfills the challenge of integrating these theories into one cohesive and general model of salience. We specialize RPM to provide a behavioral foundation for the salient thinking model.
- On Dynamic Consistency in Ambiguous Games
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.
- Advertising with Costly Attention
[email me for a copy]
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.