Essays on Constrained Information Acquisition

Abstract

This dissertation explores the theory of constrained information acquisition and its application. I will provide theoretical models to study how economic agents who are facing limited ability to process information acquire information and how the information acquisition affects the trade mechanism in binary trades. First, I study a dynamic information acquisition problem of an individual who faces a limited ability to process information. The individual acquires information to predict a payoff-relevant state such as the market condition in two periods. I characterize the optimal information structure and discuss how we can identify the discount factor and the information capacity. Under the optimal information acquisition, he uses three types of learning strategies depending on how certain he is about the state. In addition, I will provide two ways to identify the discount factor and the information capacity from the observed data.Second, I will explore an application of the costly information acquisition model. I study a trade model where buyers costly acquire information about a good and a seller offers menus of an upfront fee and a strike price to screen the buyers’ ability to process information in order to differentiate the buyers. I first provide the buyer's optimal information acquisition problem and then the seller's optimal selling mechanism. The willingness to pay for the strike price depends on the ability to process information. The seller offers a higher strike price to a buyer with higher ability and a higher participation fee to extract the surplus.