Persuasion with Correlation Neglect
We consider an information design problem in which a sender tries to persuade a receiver that has “correlation neglect”, i.e., fails to understand that signals might be correlated. We provide a graphical characterisation of the feasible information structures with a finite number of signals. The characterisation shows that while it is always feasible to fully positively correlate signals, negative correlation imposes restrictions on what the sender can do. Still, we show that sometimes the optimal strategy for the sender will involve negative correlation. In an application to correlation across media outlets, we show that a media owner will fully correlate signals when the prior is against her interests, and will use negative correlation between outlets when the prior is in her favour. We also show that when a sender has a large number of signals, she can achieve her first best even when her utility is state-dependent.
25 February 2020, 12:45 (Tuesday, 6th week, Hilary 2020)
Nuffield College, New Road OX1 1NF
Ines Moreno de Barreda (University of Oxford)
Department of Economics
Economic Theory Workshop
Members of the University only