The Simple Economics of Optimal Persuasion

49 Pages Posted: 29 May 2016 Last revised: 30 Nov 2017

See all articles by Piotr Dworczak

Piotr Dworczak

Northwestern University - Department of Economics

Giorgio Martini

Stanford Graduate School of Business

Date Written: November 30, 2017

Abstract

We study Bayesian persuasion problems in which the Sender's preferences depend only on the mean of posterior beliefs. We show that, given a price schedule for posterior means, the Sender faces a consumer-like choice problem, purchasing posterior means using the prior distribution as her endowment. Prices are determined in equilibrium of a Walrasian economy with the Sender as the only consumer and a production technology that garbles the state. Welfare theorems provide a verification tool for optimality of a persuasion scheme, and characterize the structure of prices that support the optimal solution. This price-theoretic approach yields a tractable solution method for persuasion problems with infinite state spaces. Moreover, we show that the approach extends to the general case with no restrictions on Sender's utility.

Keywords: Bayesian Persuasion, Walrasian Equilibrium, Lagrangian, mean-preserving spreads

JEL Classification: D82, D83

Suggested Citation

Dworczak, Piotr and Martini, Giorgio, The Simple Economics of Optimal Persuasion (November 30, 2017). Available at SSRN: https://ssrn.com/abstract=2785970 or http://dx.doi.org/10.2139/ssrn.2785970

Piotr Dworczak (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Giorgio Martini

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
123
Abstract Views
664
rank
289,511
PlumX Metrics