Events at CERGE-EI

Anne-Katrin Roesler

Bonn Graduate School of Economics (BGSE), University of Bonn, Germany

Author: Anne-Katrin Roesler

Abstract: A rationally inattentive consumer processes information about his valuation prior to making his purchasing decision. In a monopoly pricing problem, I study the case in which the consumer has information processing constraints that only allow him to choose finite information structures, as well as the unconstrained case.

Any finite consumer-optimal information structure satisfies three properties: It induces efficient trade, is partitional (coarse perception ), and yields seller indifference. Having access to information structures with more signal realizations yields strictly higher expected surplus for the consumer. Even in the absence of information processing constraints and costs, the consumer does not want to become perfectly informed. Every consumer-optimal information structure yields only a coarse perception about low values, whereas the information about high values is more precise and may be perfectly informative. In the resulting equilibrium, trade is efficient and the consumer is strictly better off than under fully informed monopoly pricing.

Keywords: Rational inattention, Information constraints, Information design, Monopoly pricing.

JEL Classifications: C72, D42, D82, D83, L12.

Full Text: “Is Ignorance Bliss? Rational Inattention and Optimal Pricing”