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Persuasion in an asymmetric information economy: a justification of Wald’s maxmin preferences

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  • Zhiwei Liu

    (Capital University of Economics and Business)

  • Nicholas C. Yannelis

    (The University of Iowa)

Abstract

To justify the use of Wald’s maxmin preferences in an asymmetric information economy, we introduce a mechanism designer who can convince/persuade agents to adopt Wald’s maxmin preferences. We show that more efficient and individually rational allocations become incentive compatible if the mechanism designer persuades agents to use Wald’s maxmin preferences instead of Bayesian preferences. Thus, we justify the Wald’s maxmin preferences by showing that agents can be persuaded to use them in order to enlarge the set of efficient, individually rational and incentive compatible allocations.

Suggested Citation

  • Zhiwei Liu & Nicholas C. Yannelis, 2021. "Persuasion in an asymmetric information economy: a justification of Wald’s maxmin preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(3), pages 801-833, October.
    • Handle: RePEc:spr:joecth:v:72:y:2021:i:3:d:10.1007_s00199-021-01364-7
    DOI: 10.1007/s00199-021-01364-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Persuasion; Efficient; Individually rational; Incentive compatibility; Wald’s maxmin preferences;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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