UC Santa Barbara

This dissertation consists of three experimental studies on information economics, exploring the topics of the demand for information, the choice and use of information, and information design within strategic contexts.

Chapter 1 studies how people choose sets of information sources (referred to as information bundles). The findings reveal that subjects frequently fail to choose the more instrumentally valuable bundle in binary choices, largely due to the challenge of integrating the information sources within a bundle to identify their joint information content. The mistakes in choices can not be attributed to an inability to use information bundles. Instead, these mistakes are strongly explained by subjects' tendency to follow a simple but imperfect heuristic when valuing them, which we call "common source cancellation (CSC)''. The heuristic causes subjects to mistakenly disregard the common information source in two bundles and focus solely on the comparison of the sources that the two bundles do not share. As a result, choices between information bundles are made without adequately considering the joint information content of each bundle. Notably, CSC emerges as a robust explanation for the information bundle choices for all subjects, including those who make perfect use of information bundles to make inferences.

Chapter 2, based on a joint work with Ryan Oprea and Sevgi Yuksel, studies how people’s demand for information structures is shaped by their informativeness—the reduction in uncertainty they produce. To do this, we introduce new methods that remove confounds for information demand like failures of Bayesian reasoning. We show that people (i) strongly demand informativeness when it has instrumental value but also (ii) display a sharp aversion to informativeness when it cannot be used to improve choice, sometimes leading to costly errors in information choice. Several strands of evidence suggest that this aversion is driven by subjective information processing costs that rise with informativeness.

Chapter 3, based on a joint work with Sen Geng, explores theoretically and experimentally whether information design can be used by trustees as a signaling device to boost trusting acts. In our main setting, a trustee partially or fully decides a binary payoff allocation and designs an information structure; then a trustor decides whether to invest. In the control setting, information design is not available. In line with the standard equilibrium analysis, we find that introducing information design increases trustworthiness and trusting acts, and some trustees choose full trustworthiness with the most informative structure. We also find systematic behavioral deviations, including some trustees' choosing zero trustworthiness with the least informative structure and trustors' overtrusting in low informative structures. We finally provide a model of heterogeneity in prosociality and strategic sophistication, which rationalizes the experimental findings.