Essays on Information Economics

This dissertation contains three essays on information economics that aim to understand the value and cost of information in the context of individual decision making and strategic interaction. Chapter 1 investigates how a sender, by providing free information to a perfectly rational receiver, can manipulate the receiver's learning. Formally, I employ a Bayesian persuasion model with the additional assumption that the receiver has costly opportunities to acquire further information after receiving the information from the sender. It seems that the sender should make the receiver end up knowing more than she would otherwise (I call this “encouragement”). However, as is shown in the paper, the sender may also make the receiver end up knowing less (I call this “deterrence”) or knowing different things than she would otherwise (I call this “diversion”). I identify the necessary condition for the feasibility of these manipulations, where two properties of the receiver's information acquisition cost function, that the recent literature on information acquisition calls Sequential Learning Proofness (SLP) and the more restrictive Indifference to Sequential Learning (ISL), play a vital role. Chapter 2, which is joint work with Tilman Borgers, proposes a general theory of dominance among choices that encompasses strict and weak dominance among strategies in games, Blackwell dominance among experiments, and first or second order stochastic dominance among monetary lotteries. One choice dominates another if in a variety of situations the former choice yields higher expected utility than the latter. We then investigate whether, in a finite set of possible choices, all undominated choices are optimal in some situation. We present a formal framework in which the answer to this question is positive, and we show that within this framework the set of undominated choices is the smallest set to which the decision maker can restrict attention ex ante without running the risk of not having an optimal choice in the particular situation in which she finds herself. For this result it is crucial that the dominating alternatives are allowed to be convex combinations (in games: mixed strategies). A detailed analysis of dominance in game theory, Blackwell dominance, and first or second order stochastic dominance in one common framework also allows us to compare the properties of these concepts, and to obtain insights into why certain versions of our result apply only to some, but not all of these concepts. Chapter 3, which is joint work with Tilman Borgers, investigates which joint distributions of two signals are not Blackwell dominated among all the joint distributions with fixed marginal distributions. For a special case with just two states and two signal realizations per signal, we provide a complete characterization of joint distributions that are not Blackwell dominated by any single joint distribution and the counterpart for any convex combination of joint distributions. For the general case, we present a necessary condition for a joint distribution not being Blackwell dominated by a convex combination of joint distributions. In all cases, the conditionally independent joint distribution is Blackwell dominated.PhDEconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/174266/1/xienanc_1.pd