Purchase history and product personalization

Product personalization opens the door to price discrimination. A rich product line allows for higher consumer satisfaction, but the mere choice of a product carries valuable information about the consumer that the firm can leverage for price discrimination. Controlling the degree of product personalization provides the firm with an additional tool to curb ratcheting forces arising from consumers' awareness of being price discriminated. Indeed, a firm's inability to not engage in price discrimination introduces a novel distortion: The firm offers a subset of the products that it would offer if, instead, the firm could commit to not price discriminate. Doing so gives commitment power to the firm: By "pooling" consumers with different tastes to the same variety the firm commits not to learn their tastes

Large mechanism design with moment-based allocation externality

In many mechanism design problems in practice, often allocation externality exists (e.g., peer effects in student allocation, and post-license com- petition in oligopoly). Despite the practical importance, mechanism design with allocation externality has not been much explored in the literature, per- haps due to the tractability issue of the problem. In this paper, we propose a simple and tractable model of mechanism design with allocation externality. We characterize the optimal mechanism, which has a very simple form in the sense that it is identified by only a few parameters. This simplicity of the optimal mechanism is also useful to obtain comparative statics results

Wishful Thinking: Persuasion and Polarization

How can motivated thinking impact strategic information disclosure? We investigate this question by modelling a game of persuasion in which Receiver is a "wishful thinker" in the fashion of Caplin and Leahy (2019). Following reception of Sender's signal, Receiver optimally chooses its subjective belief by trading off the anticipatory utility she derives from being optimistic and the psychological cost of distorting beliefs. We derive the optimal correspondence between Bayesian and motivated belief and characterize conditions on primitives of the model that define whether the persuader is better or worse off when facing a wishful thinker vis-\`a-vis the Bayesian canonical model of Kamenica and Gentzkow (2011). We apply those results to explain some stylized facts such as why financial advisors often mislead their clients and why informational interventions are often inefficient in inducing more investment in preventive health treatments. Finally, we extend the model to a binary majority voting setting in which wishful voters hold heterogeneous partisan preferences. We show that, if voters' preferences are symmetrically distributed around the median voter, optimal public persuasion induces maximum belief polarization in the electorate. This formalizes a new mechanism for the emergence of polarization: as a byproduct of strategic information disclosure to wishful agents