Economic Theory and Experiments Seminar Series - Chris Teh (University of New South Wales)

Title: Leveraging Benchmarks via Information Design

Abstract: Agents choose to invest or not, and the designer always prefers higher aggregate investment. I assume the equilibrium selected under an information structure is the limit of Level-K thinking. The initial belief about aggregate investment, called the benchmark, determines equilibrium selection. Designer-preferred and adversarial selection coincide with extreme benchmarks. I show that all out-comes are implemented by information structures that send a fraction of agents identical signals, and others distinct signals. A higher benchmark increases aggregate investment and the fraction of agents with identical signals under the designer’s optimal information structure. Agents’ payoffs often vary non-monotonically in the benchmark. Finally, the designer’s loss when limited to public information is lower under higher benchmarks. My work elucidates on how payoff-irrelevant factors such as culture, biases, and investor confidence, captured by the benchmark, can shape optimal information disclosure.