Working Paper: CEPR ID: DP18282
Authors: Alex Smolin; Takuro Yamashita
Abstract: Several players participate in a game with a continuum of actions. A designer chooses an information structure - a joint distribution of a state and private signals - and evaluates it according to the expected designer's payoff in the induced Bayes Nash equilibrium. We show an information structure is designer-optimal whenever the equilibrium play it induces can also be induced in an auxiliary contracting problem. This finding gives rise to a tractable solution method, which we use to study two novel applications. In an investment game, an optimal structure fully informs a single investor while providing no information to others. This structure is robustly optimal, for any state distribution and number of investors. In a price competition game, an optimal structure is Gaussian and recommends prices linearly in the state. This structure is uniquely optimal.
Keywords: Bayesian persuasion; Information design; Certification approach; Large scale games; Selective informing; Gaussian signals
JEL Codes: C72; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| information structure (L15) | equilibrium actions of players (C72) |
| optimal information structure (D83) | investment behavior (G11) |
| optimal information structure (D83) | actions of uninformed investors (G41) |
| Gaussian information structure (C46) | pricing strategies firms adopt (L11) |
| Gaussian information structure (C46) | producer and consumer surplus (D11) |