The Simple Economics of Optimal Persuasion
49 Pages Posted: 29 May 2016 Last revised: 30 Nov 2017
Date Written: November 30, 2017
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: Suggested Citation