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UID:0dac634d823c1b26b32bb1f7667d8f18
CATEGORIES:Seminars
CREATED:20150504T160148
SUMMARY:Botond Koszegi - Central European University
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:Naivete-Based Discrimination\nAbstract:\nWe initiate the study of naivete-b
 ased discrimination, the practice of conditioning offers on external inform
 ation about a consumer’s naivete. We identify a broad class of situations i
 n which such discrimination lowers social welfare. In our primary example, 
 a credit market with time-inconsistent borrowers, improving lenders’ inform
 ation about borrowers’ short-run taste for immediate gratification (beta) o
 r naivete about this taste (beta-hat) always lowers welfare. Because non-so
 phisticated borrowers underestimate their willingness to pay interest on a 
 loan, lenders raise the amount of credit above optimal. Information about c
 onsumers leads firms to raise inefficient lending to consumers more likely 
 to be naive and to lower inefficient lending to consumers more likely to be
  sophisticated, while raising total lending. We identify precisely what kin
 d of information is welfare-decreasing. We show that information that allow
 s firms to learn about the naivete of consumers with given beliefs always s
 trictly decreases total welfare, but information about a consumer’s beliefs
  has at most distributional implications, while information about tastes is
  neither necessary nor sufficient to decrease welfare. We show that the log
 ic of our results extends to other markets, such as bank accounts or hotels
 , where consumer naivete may play a role and the distortion from exploiting
  naivete falls on both types of consumers. We also point out important sett
 ings outside this class, and identify the effect of information about naive
 te in those cases.\n
DTSTAMP:20260404T073909Z
DTSTART:20150319T173000Z
DTEND:20150319T190000Z
SEQUENCE:0
TRANSP:OPAQUE
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