Job Market Paper
Attention Holdup
Abstract: A novel form of the holdup problem emerges in market interactions where a consumer invests in learning about product quality set by a producer. Flexible information acquisition, modeled using rational inattention, mitigates this holdup problem by enabling positive quality provision: in equilibrium, the producer randomizes between zero and a higher-than-price quality. A trade-off arises. When attention costs decrease, high quality rises as the consumer learns about quality more precisely. However, by acquiring better information, the consumer loses commitment power and needs to trade less often to discourage producer deviations. When attention costs vanish, the holdup becomes inevitable: to deter deviations, the consumer never trades, causing the market to fail. Following this trade-off, high information or production costs and low prices increase profits by providing commitment benefits that enhance trade efficiency. A new refinement, preventing information from being acquired for free, uniquely selects this binary-quality equilibrium.
Published Papers
American Economic Review, 114, no. 1, (2024):285-306
(with C. Cusumano and F. Pieroth)
Competing to Commit: Markets with Rational Inattention
Abstract: Two homogeneous-good firms compete for a consumer’s unitary demand. The consumer is rationally inattentive and pays entropy costs to process information about firms’ offers. Compared to a collusion benchmark, competition produces two effects. As in standard models, competition puts downward pressure on prices. But, additionally, an attention effect arises: The consumer engages in trade more often. This alleviates the commitment problem that firms have when facing inattentive consumers and increases trade efficiency. For high enough attention costs, the attention effect dominates the effect on prices: Firms’ profits are higher under competition than under collusion.
Working Papers
Rational Inattention with Ambiguity Aversion
Abstract: We develop a tractable framework to incorporate ambiguity aversion into rational inattention. We model uncertainty using smooth ambiguity (Klibanoff, Marinacci, and Mukerji, 2005) and define entropy-based information costs on the predictive prior distribution. This allows us to rewrite the problem in terms of stochastic choice rules. Our solution generalizes Matějka and McKay’s (2015) multinomial logit formula by adding an exponential multiplicative state fixed-effect that depends on ambiguity and the attitudes towards it. We provide an axiomatic characterization of this formulation. We also study when our solution follows Luce’s (1959) multinomial logit model, providing a new foundation robust to ambiguity aversion.
(with S. Moroni)
Dynamic Games with Noisy Informational Asymmetries
Extended abstract in ACM EC '24
Abstract: We define and establish the existence of constrained equilibria and trembling hand perfect equilibria in infinite dynamic games with asymmetric and imperfect information. These results rely on the novel notion of sequential absolute continuity, which extends Milgrom and Weber’s (1985) absolute continuity condition to dynamic games. We show that sequential absolute continuity holds in a broad class of games with “noisy informational asymmetries,” in which players’ private information includes some idiosyncratic noise. In Markov settings, our approach allows us to prove the existence of Markov equilibria, where strategies depend only on current payoff-relevant variables.
Absolute and Relative Ambiguity Attitudes
(with G. Principi and L. Stanca)
Abstract: We represent preferences that exhibit absolute or relative attitudes towards ambiguity without assuming convexity of preferences. Our analysis is motivated by the recent experimental evidence by Baillon and Placido (2019) indicating that ambiguity becomes more tolerable as individuals' welfare improves. Decreasing absolute ambiguity aversion is characterized by constant superadditive certainty equivalents and admits an act-dependent variational representation (Maccheroni et al., 2006). Decreasing relative ambiguity aversion relates to positive superhomogeneity and admits an act-dependent confidence preference representation (Chateauneuf and Faro, 2009). We apply our characterizations to retrieve a classic risk sharing result on the efficiency of trade and subjective beliefs of the individuals (Rigotti et al., 2008).
Work in Progress
Games with Nature
(with M. Marinacci and G. Principi)
Idea: We model uncertainty as a game played with a non-necessarily adversarial Nature.
Updating against Nature
(with P. Ortoleva)
Idea: Under ambiguity aversion, the value of information is determined in the equilibrium of a zero-sum game played against Nature.
Costly Endogenous Updating
(with J. Thereze)
Idea: When updating, decision makers trade-off the benefits of forming more precise beliefs and saving on the mental effort.