Benefits and Challenges of Ambiguous Product Information

52 Pages Posted: 13 Apr 2023 Last revised: 5 Mar 2024

See all articles by Matthias Lang

Matthias Lang

Ludwig Maximilian University of Munich (LMU); CESifo (Center for Economic Studies and Ifo Institute)

Cédric Wasser

University of Basel - Faculty of Business and Economics

Date Written: March 5, 2024

Abstract

We study the welfare effects of ambiguous product information for a buyer with alpha-max-min preferences and a price-setting seller. The buyer privately receives information about her valuation. We show that both can benefit when this information is ambiguous, and we characterize all possible combinations of consumer and producer surplus. Ambiguity concerning the valuation perceived by the buyer when making the purchase decision can induce the seller to change the price. Before receiving information, ambiguity concerning the purchase decision can make the buyer optimistic about buying only for high valuations, which relaxes the participation constraint. Our results inform the regulation of ambiguous product information.

Keywords: Ambiguity, Uncertainty, Information Design, Bayesian Persuasion, Strategic Learning

JEL Classification: D42, D81, D82, D83, L12

Suggested Citation

Lang, Matthias and Wasser, Cédric, Benefits and Challenges of Ambiguous Product Information (March 5, 2024). Available at SSRN: https://ssrn.com/abstract=4405153 or http://dx.doi.org/10.2139/ssrn.4405153

Matthias Lang

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Cédric Wasser (Contact Author)

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
Basel, 4002
Switzerland

HOME PAGE: http://www.cedricwasser.net

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