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Misperception and Cognition in Markets

Author

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  • Benjamin Young

    (Economics Discipline Group, UTS Business School, University of Technology Sydney, Sydney 2007, Australia)

Abstract

We consider a market setting where a consumer holds either a naive or sophisticated perception of their preference over products. We introduce the concept of a cognitive equilibrium, in which the consumer can transition between the cognitive states of naiveté and sophistication depending on the degree of exploitation in the market. We compare market outcomes under monopoly and competition. While competition unambiguously improves market outcomes when the consumer’s cognitive state is exogenous, it can strictly lower gains from trade when cognitive states are endogenously determined.

Suggested Citation

  • Benjamin Young, 2022. "Misperception and Cognition in Markets," Games, MDPI, vol. 13(6), pages 1-15, October.
    • Handle: RePEc:gam:jgames:v:13:y:2022:i:6:p:71-:d:956443
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    References listed on IDEAS

    as
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    Cited by:

    1. Zhongwen Chen & Xiaojian Zhao, 2023. "Strategic Information Suppression in Borrowing and Pre-Lending Cognition: Theory and Evidence," Games, MDPI, vol. 14(3), pages 1-24, May.

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