The Supply of Information by a Concerned Expert

How much information should a policy maker pass on to an ill-informed citizen? In this paper, we address this classic question of Crawford and Sobel (1982) in a setting in which beliefs impact utility, as in Kreps and Porteus (1978). We show that this question cannot be answered using a utility function with standard revealed preference foundations. To solve the model, we go beyond the classical model in two respects, relying on the psychological expected utility model of Caplin and Leahy (2001) to capture preferences, and the psychological game model of Geanakoplos et al. (1989) to capture strategic interactions.

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