Influence through ignorance

An individual (the leader) with free access to information decides how much public evidence to collect. Conditional on this information, another individual with conflicting preferences (the follower) undertakes an action that affects the payoff of both players. In this game of incomplete but symmetric information, we characterize the rents obtained by the leader as a result of his control of the generation of public information. These rents capture the degree of influence exerted by a chairman on a committee from his capacity to keep discussions alive or call a vote. Similar insights are obtained if the leader decides first how much private information he collects, and then how much verifiable information he transmits to the follower.     

Entrepreneurial Boldness and Excessive Investment

We analyze investment by a population of hyperbolic discounting entrepreneurs. In order to avoid inefficient procrastination, agents with good prospects about their chances of success may choose to forego free information and to invest boldly. This explains an excessive level of investment in the economy. Building on this observation, we show that low risk-free interest rates favor bold entrepreneurship and entry mistakes. Furthermore, public intervention can be socially desirable: Forcing agents to acquire information before deciding whether to invest may reduce competitive interest rates and may be beneficial for all individuals in the economy .

And thus the native hue of resolution Is sicklied o'er with the pale cast of thought, And enterprises of great pith and moment With this regard their currents turn awry, And lose the name of action.                      Hamlet , Act 3: Scene 1.

     

Information gatekeepers: theory and experimental evidence

We consider a model where two adversaries can spend resources in acquiring public information about the unknown state of the world in order to influence the choice of a decision maker. We characterize the sampling strategies of the adversaries in the equilibrium of the game. We show that as the cost of information acquisition for one adversary increases, that person collects less evidence whereas the other adversary collects more evidence. We then test the results in a controlled laboratory setting. The behavior of subjects is close to the theoretical predictions. Mistakes are relatively infrequent (15%). They occur in both directions, with a higher rate of over-sampling (39%) than under-sampling (8%). The main difference with the theory is the smooth decline in sampling around the theoretical equilibrium. Comparative statics are also consistent with the theory, with adversaries sampling more when their own cost is low and when the other adversary??s cost is high. Finally, there is little evidence of learning over the 40 matches of the experiment.     

Information Acquisition and Choice Under Uncertainty

This paper presents a model where individuals have imperfect information and there is an opportunity cost of learning. It shows that the endogenous decision to collect costly information before taking an action has a systematic effect on choices. More precisely, consider two alternatives with ex ante identical expected payoff but different variances. The model predicts that, after the learning process is stopped, a majority of individuals will select the alternative with largest payoff-variance. The result persists when agents have multiple sources of information. Applications to entrepreneurial investments, composition of advisory committees, and judicial decision-making are discussed.     

Optimal choice of characteristics for a nonexcludable good

In this model, a principal decides whether to produce one indivisible good and which characteristics it contains. Agents are differentiated along two substitutable dimensions: a vertical parameter that captures their valuation for the good, and a horizontal parameter that captures their disutility when the characteristics are distant from their preferred ones. When valuations are private information, the principal produces a good with characteristics more on the lines of the preferences of the agent with the lowest valuation. Under asymmetric information on the horizontal dimension, the principal biases the decision in favor of the agent who incurs the highest disutility.     

Optimal Regulation of Cooperative R&D Under Incomplete Information

A regulator offers a cooperation contract to two firms to develop a research project. The contract provides incentives to encourage skill-sharing and coordinate subsequent efforts. Innovators must get informational rents to disclose their privately known skills, which results in distorting R&D efforts with respect to the first-best level. When efforts are strategic complements, both efforts are distorted downwards. By contrast, when efforts are strategic substitutes, the effort of the firm with most valuable skills is distorted downwards (to decrease rents) and the effort of the other firm is distorted upwards (to compensate the previous efficiency loss).