## Working Papers

# Dynamic Choice of Information Sources (job market paper)

## Oct 1, 2020

An agent has to choose among a finite set of actions with payoffs depending on an unknown state of the world with two (possibly correlated) binary components, (θ1, θ2), θi∈{0,1}. Before making the choice, the agent can learn about the state by dynamically allocating his limited attention over two information sources, modelled as search processes for conclusive evidence of θ1=1 or θ2=1. In the special case where θ1+θ2 ≤1, the agent searches for the most probable evidence up to some time t*, and after that he continues by challenging his current beliefs in the most effective way. The agent never changes his allocation of attention after t*. When the state (1,1) is possible, the attention rule before t* is different. Sufficient conditions for t*>0 are given. A negative correlation between the state components increases t*.

# Implications of Overconfidence on Information Investment (joint with Marcelo A. Fernandez)

## Oct 22, 2017

We present a dynamic model that illustrates three forces that shape the effect of overconfidence (overprecision of consumed information) on the amount of collected information. The first force comes from overestimating the precision of the next consumed piece of information. The second force is related to overestimating the precision of already collected information. The third force reflects the discrepancy between how much information the agent expects to collect and how much information he actually collects in expectation. The first force pushes an overconfident agent to collect more information, while the second and the third forces work in the other direction.

# Disagreement Under Almost Common Knowledge of Rationality (joint with Emiliano Catonini)

## February 2, 2020

Two agents sincerely exchange their best guesses about the state of the world infinitely many times. When each agent places a small positive probability on the event that her opponent is of some finite level of reasoning and initial disagreement is large enough (that is, private signals are strong and different), permanent and large disagreement is possible even for infinitely sophisticated agents.

## Work in Progress

# Diversity and Communication (joint with Miaomiao Dong)

We study optimal diversity in a team of two agents where the decision is delegated to a single agent. As a function of the cost of communication between the agents, the optimal diversity has a hump-shaped form, balancing two forces: higher diversity increases the combined knowledge of the team but hinders communication. When the cost of communication is low, the first force prevails, and reducing the cost increases the optimal diversity. When the cost of communication is high, the second force prevails, and reducing the cost decreases the optimal diversity.

# Privacy Protection: When Does Hiding in Plain Sight Work? (joint with Arina Nikandrova)

We study a model where a hider aims to prevent a seeker from learning sensitive information about her. The hider can pre-commit to ex ante level of protection for sensitive information. We show that when full protection of sensitive information is not feasible, the hider may optimally choose to hide sensitive information in plain sight, that is, protect it less than non-sensitive information, in hope that the seeker would quickly give up the search for the hider's information because he would think that, had there been anything sensitive to uncover, he would have found it already. The optimal protection level for sensitive information is increasing in the exogenous protection level for non-sensitive information, thus making these two types of protection complementary. This complementary calls for stronger privacy protection laws, as without them, selective protection of sensitive information is inefficient. In addition, we extend the model by allowing the hider to control the number of seekers. Then open access (infinite number of seekers) is optimal.

## Archive

# Are People Subject to Persuasion Bias? Test of DeGroot Model (joint with Li Song)

## Sept 27, 2017

Theoretical paper DeMarzo, Vayanos, and Zwiebel (2003) proposes a model of information aggregation in networks when individuals are subject to persuasion bias. The term "persuasion bias" refers to a particular form of boundedly rational behavior when individuals connected into a network do not account for repetition in the information they acquire. We argue that under the assumption that agents form their beliefs as a weighted average of all information available to them, the persuasion bias assumption is equivalent to a generalized version of the famous DeGroot model (DeGroot (1974)). We test the persuasion bias hypothesis against the (generalized) Bayesian updating model and find support for the persuasion bias hypothesis. We also found a positive correlation between how well a subject fits the generalized DeGroot model, compared to the alternative generalized Bayesian updating model, and their performance in the experiment. Data suggest that the generalized DeGroot model better accommodates other subjects' deviations from equilibrium, which explains the positive correlation.

# Stochastic Choice in Criterion Space

## May 30, 2014

Many experiments demonstrate that an individual's choice decisions are inconsistent. Following Luce (1959) and Block, Marschak, et al. (1960), a random choice approach to this problem has become very popular. It posits the existence of a probabilistic choice function that describes the probability of choosing an alternative from a given set of options. This paper contributes to the theoretical literature that narrows the class of random choice functions. Each alternative can be fully characterized by a vector in a n-dimensional space. A decision maker pays attention only to a randomly chosen subset of coordinates (or criteria) each time he faces a set of alternatives to choose from. Given this randomly chosen subset, he is perfectly rational, that is he chooses according to some strict preference ordering. For this procedure to be well-defined, the preference ordering must be separable with respect to criteria. In other words, the preference of the decision maker over any two alternatives should not depend on the characteristics that these alternatives have in common. This paper characterizes all systems of choice probabilities that are induced by this choice procedure.