CeDEx Seminar - Inés Moreno de Barreda (University of Oxford)

Persuasion with Correlation Neglect: A Full Manipulation Result

Abstract:

We consider an information design problem in which a sender tries to persuade a receiver that has "correlation neglect", i.e., fails to understand that signals might be correlated. We show that a sender with unlimited number of signals can fully manipulate the receiver to achieve her first best; that is, the sender can induce the receiver to hold any state-dependent posterior. In general, full (positive) correlation of signals will not be enough to achieve full manipulation. However, when restricting attention to a sender with state-independent utility, the sender can achieve her first best using fully correlated signals. In that case, the optimal fully correlated information structure can be computed with concavification techniques (Kamenica and Gentzkow, 2011) applied to a modified problem. This also allows us to show the limits of manipulation when the sender only has a finite number of signals at her disposal.