Essays in Psychological and Political Economics

Abstract

This dissertation is composed of three unrelated chapters, all of which are theoretical.In Chapter 1, co-authored with Kristóf Madarász, we develop a model in which people experience standard consumption utility as well as anticipatory utility, defined as the weighted sum of independently anticipated consumption "episodes" or "dimensions". The weights on these dimensions correspond to the attention that the person pays to the dimension. We assume attention on a dimension increases when expected consumption utility in the dimension differs from expected consumption utility under the default action or the prior belief. We show that the decision maker will pay more for information about dimensions with high expected consumption utility, and the willingness to pay may be negative when expected consumption utility is low. Additionally, when expected consumption utility is sufficiently low, but not when it is high, the decision maker will follow the default action even if it is suboptimal from a consumption standpoint. Furthermore, given the decision maker's current beliefs and preferences in a dimension, he will consume more in that dimension if he just received information. We then consider an advertisement application in which a monopolist decides whether to certifiably reveal the quality of various exogenous attributes of a good to a consumer who may choose to buy or not. There exists a sequential equilibrium for which the monopolist will not disclose information for attributes in which the consumer's utility with the highest quality good is sufficiently worse than not buying the good. Competition increases disclosure.The purpose of the Chapter 2 is to connect the literature on industrial self-regulation with the literature on political revolutions by showing that these seemingly different situations are, from a strategic perspective, different cases of the same basic game. I construct a simple two-player extensive game of complete information in which two players have preferences over the realization of a policy in one dimension. The first mover has a marginal cost to change the policy and the second player has a fixed cost. The first mover may placate the second mover from taking action or provoke the second mover to take action. In equilibrium, the second mover may benefit from having preferences that diverge more from the first player, and may benefit by having higher fixed costs. The equilibria are robust even when there are multiple first movers. Many applications are discussed and incorporated into the framework.In Chapter 3 I study the interaction where an informed party wants an uninformed party to believe that the state of the world is as high as possible. A fraction of the time the informed party exogenously "leaks" the true state of the world, and a fraction of the time the informed party can strategically choose a "decoy" that is indistinguishable from the exogenous leak. Despite preferences being similar to those in Crawford and Sobel (1982) with maximum bias, strategic senders do not babble. Instead they trade-off exaggeration for credibility. In equilibrium, all messages received below a threshold will be leaks and will be believed by the receiver, while all messages above the threshold will induce an identical expectation. The model applies to many applications. In particular we motivate the model with a political interpretation in which leaks represent transparency within a political administration.

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