Optimal Attention Management: A Tractable Framework

A well-intentioned principal provides information to a rationally inattentive agent without internalizing the agent's cost of processing information. Whatever information the principal makes available, the agent may choose to ignore some. We study optimal information provision in a tractable mo...

Full description

Saved in:
Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Lipnowski, Elliot, Mathevet, Laurent, Dong, Wei
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2020
Subjects
Disclosure
Online AccessGet full text

Cover

More Information
Summary:A well-intentioned principal provides information to a rationally inattentive agent without internalizing the agent's cost of processing information. Whatever information the principal makes available, the agent may choose to ignore some. We study optimal information provision in a tractable model with quadratic payoffs where full disclosure is not optimal. We characterize incentive-compatible information policies, that is, those to which the agent willingly pays full attention. In a leading example with three states, optimal disclosure involves information distortion at intermediate costs of attention. As the cost increases, optimal information abruptly changes from downplaying the state to exaggerating the state.