Working Papers

R&R REStud

We analyze screening with frame-dependent valuations. A monopolist principal designs an extensive-form decision problem with frames at each stage. This allows the firm to induce dynamic inconsistency and thereby reduce information rents. We show that the optimal extensive form has a simple three-stage structure and uses only the two highest frames (high-low-high). Some types buy in the first stage, while others continue the interaction and buy at the last stage. The principal offers unchosen decoy contracts. Sophisticated consumers correctly anticipate that if they deviated, they would choose a decoy, which they want to avoid in a lower frame. This eliminates incentive compatibility constraints into types who don’t buy in the first stage. With naive consumers, the principal can perfectly screen by cognitive type and extract full surplus from naifs.

We identify a market characteristic central to the impact of the exploitation of consumer naïvete about hidden costs on profits, incentives to increase price transparency and the impact of transparency on consumer surplus: the difference between cross-price elasticities of demand of naïve and sophisticated consumers. Exploiting consumer naïvete increases profits and persist in the long run only if naïfs are more price sensitive than sophisticates. Targeting of transparency matters. Increased transparency is most valuable to consumers when firms have the least incentives to engage in it, can increase aggregate welfare, but typically redistributes surplus from consumers to firms.

Work in Progress

Screening for Susceptibility and Influence, with Elia Sartori

Behavioral Implementation in Extensive Form, with Denis Shishkin

Optimal Transparency with Information Acquisition, with Elia Sartori


„A note on consequentialism in a dynamic Savage framework: a comment on Ghirardato (2002).“ Economic Theory Bulletin, 2015, 3:2, 265-269, with Joachim Hubmer