Bayesian Persuasion

When is it possible for one person to persuade another to change her action? We consider a symmetric information model where a sender chooses a signal to reveal to a receiver, who then takes a noncontractible action that affects the welfare of both players. We derive necessary and sufficient conditions for the existence of a signal that strictly benefits the sender. We characterize sender-optimal signals. We examine comparative statics with respect to the alignment of the sender's and the receiver's preferences. Finally, we apply our results to persuasion by litigators, lobbyists, and salespeople. (JEL D72, D82, D83, K40, M31)

Bayesian Persuasion

When is it possible for one person to persuade another to change her action? We take a mechanism design approach to this question. Taking preferences and initial beliefs as given, we introduce the notion of a persuasion mechanism: a game between Sender and Receiver defined by an information structure and a message technology. We derive necessary and sufficient conditions for the existence of a persuasion mechanism that strictly benefits Sender. We characterize the optimal mechanism. Finally, we analyze several examples that illustrate the applicability of our results.

Competition in Persuasion

Does competition among persuaders increase the extent of information revealed? We study ex ante symmetric information games where a number of senders choose what information to gather and communicate to a receiver, who takes a non-contractible action that affects the welfare of all players. We characterize the information revealed in pure-strategy equilibria. We consider three ways of increasing competition among senders: (i) moving from collusive to non-cooperative play, (ii) introducing additional senders, and (iii) decreasing the alignment of senders' preferences. For each of these notions, we establish that increasing competition cannot decrease the amount of information revealed, and will in a certain sense tend to increase it.

Labor Supply of Politicians

We examine the labor supply of politicians using data on Members of the European Parliament (MEPs). We exploit the introduction of a law that equalized MEPs' salaries, which had previously differed by as much as a factor of ten. Doubling an MEP's salary increases the probability of running for reelection by 23 percentage points and increases the logarithm of the number of parties that field a candidate by 29 percent of a standard deviation. A salary increase has no discernible impact on absenteeism or shirking from legislative sessions; in contrast, non-pecuniary motives, proxied by home-country corruption, substantially impact the intensive margin of labor supply. Finally, an increase in salary lowers the quality of elected MEPs, measured by the selectivity of their undergraduate institutions.

Information and Subsidies: Complements or Substitutes?

Does providing information about a product affect the impact of price subsidies on purchases of new or unfamiliar products? This question is particularly relevant for the introduction of health products in developing countries where consumers may be uncertain about product quality and price subsidies are common policy instruments. Through a field experiment selling an unfamiliar health product in Zambia, we find that providing precise information about product specifications significantly increases the impact of the price subsidy on take-up. Taken alone, the information manipulation has no significant impact on demand while the price subsidy substantially increases demand. However, evaluation of either intervention in isolation fails to capture the significant complementarity between the two

Gender Differences in Mate Selection: Evidence from a Speed Dating Experiment

We study dating behavior using data from a Speed Dating experiment where we generate random matching of subjects and create random variation in the number of potential partners. Our design allows us to directly observe individual decisions rather than just final matches. Women put greater weight on the intelligence and the race of partner, while men respond more to physical attractiveness. Moreover, men do not value women's intelligence or ambition when it exceeds their own. Also, we find that women exhibit a preference for men who grew up in affluent neighborhoods. Finally, male selectivity is invariant to group size, while female selectivity is strongly increasing in group size

Relational Incentives Theory

Our life is built around coordinating efforts with others. This usually involves incentivizing others to do things, and sustaining our relationship with them. Using the wrong incentives backfires: it lowers effort and tarnishes our relationships. But what constitutes a ‘wrong’ incentive? And can incentives be used to shape relationships in a desired manner? To address these and other questions, we introduce relational incentives theory, which distinguishes between two aspects of incentives: schemes (how the incentive is used) and means (what is used as an incentive). Prior research has focused on means (e.g., monetary vs. non-monetary incentives). Our theory highlights the importance of schemes, with a focus on how they interact with social relationships. It posits that the efficacy of incentives depends largely on whether the scheme fits the relational structure of the persons involved in the activity: participation incentive schemes for communal sharing relations, hierarchy for authority ranking relations, balancing for equality matching relations, and proportional incentive schemes for market pricing relations. We show that these four schemes comprise some of the most prevalent variants of incentives. We then discuss the antecedents and consequences of the use of congruent and incongruent incentive schemes. We argue that congruent incentives can reinforce the relationship. Incongruent incentives disrupt relational motives, which undermines the coordinating relationship and reduces effort. But, importantly, incongruent incentives can also be used intentionally to shift to a new relational model. The theory thus contributes to research on relational models by showing how people constitute and modulate relationships. It adds to the incentives and contracting literatures by offering a framework for analyzing the structural congruence between incentives and relationships, yielding predictions about the effects of incentives across different organizational and individual-level contexts

Electronic copy

Abstract: We derive the first closed-form optimal refinancing rule: Refinance when the current mortgage interest rate falls below the original rate by at least In this formula W (.) is the Lambert W -function, ρ is the real discount rate, λ is the expected real rate of exogenous mortgage repayment, σ is the standard deviation of the mortgage rate, κ/M is the ratio of the tax-adjusted refinancing cost and the remaining mortgage value, and τ is the marginal tax rate. This expression is derived by solving a tractable class of refinancing problems. Our quantitative results closely match those reported by researchers using numerical methods. JEL classification: G11, G21