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Dynamic information preference and communication with diminishing sensitivity over news

Author

Listed:
  • Duraj, Jetlir

    (Department of Economics, University of Pittsburgh)

  • He, Kevin

    (Department of Economics, University of Pennsylvania)

Abstract

A Bayesian agent experiences gain-loss utility each period over changes in belief about future consumption (``news utility''), with diminishing sensitivity over the magnitude of news. Diminishing sensitivity induces a preference over news skewness: gradual bad news, one-shot good news is worse than one-shot resolution, which is in turn worse than gradual good news, one-shot bad news. So, the agent's preference between gradual information and one-shot resolution can depend on his consumption ranking of different states. In a dynamic cheap-talk framework where a benevolent sender communicates the state over multiple periods, the babbling equilibrium is essentially unique when the receiver is not loss averse. Contrary to the commitment case, more loss-averse receivers may enjoy higher news utility in equilibrium. We characterize the family of gradual good news equilibria when facing such receivers and find the sender conveys progressively larger pieces of good news.

Suggested Citation

  • Duraj, Jetlir & He, Kevin, 2024. "Dynamic information preference and communication with diminishing sensitivity over news," Theoretical Economics, Econometric Society, vol. 19(3), July.
    • Handle: RePEc:the:publsh:5569
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    References listed on IDEAS

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    More about this item

    Keywords

    Diminishing sensitivity; news utility; dynamic information; cheap talk; preference over skewness of information;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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