We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky  showed that ‘separable’ securities aggregate information in all equilibria, however, separability is not robust to small changes in the traders’ private information. To remedy this problem, we enhance the model by allowing traders to acquire signals with cost κ, in every period. We show that ‘κ separable securities’ aggregate information and, as the cost decreases, nearly all securities become κ separable, irrespective of the traders’ initial private information. Moreover, the switch to κ separability happens not gradually but discontinuously, hence even a small decrease in costs can result in a security aggregating information. Finally, even with myopic traders, cheaper information may accelerate or decelerate information aggregation for all but Arrow-Debreu securities.
Why Is Stability Bad for Voters? (with Vladimir Novak)
Draft available upon request
Many political leaders promise stability during their election campaigns. Several explanations have been offered for the increased support for such politicians, but less is known about future development once they are in office. We develop a model with rationally inattentive voters and investigate how an office-seeking politician designs a political platform in the presence of an incumbent who offers a simple stability policy that preserves the status quo. We show that this policy, while not in the best interest of the electorate, creates negative externalities by encouraging the challenger to propose a more moderate platform, which is sub-optimal. Moreover, the model explains why and when the incumbent could benefit from and prefer the high uncertainty and high cost of information.
Rational Inattention to Value-Relevant Information in ETF (with Mariia Kosar)
3rd prize for CES Young Economist of the Year, 2021
This paper studies the information choice of exchange-traded funds (ETF) investors, and its impact on the price efficiency of underlying stocks. First, we show that the learning of stock-specific information happens at the ETF level. Furthermore, our results suggest that ETF investors endogenously respond to changes in the fundamental value of underlying stocks in line with the rational inattention theory. Second, we provide evidence that ETFs facilitate the propagation of idiosyncratic shocks across their constituents.
Attentional Role of Quota Implementation (with Andrei Matveenko)
Journal of Economic Theory, 2021 (Abstract also in FORC: Symposium on Foundations of Responsible Computing, 2020)
This paper introduces a new role of quotas, e.g. labor market quotas: the attentional role. We study the effect of quota implementation on the attention allocation strategy of a rationally inattentive (RI) agent. Our main result is that an RI agent who is forced to fulfill a quota never hires the candidates without acquiring information about them, unlike an unrestricted RI agent who in some cases bases her decision on prior belief only. We also find that in our context quotas are equivalent to other types of affirmative policies such as subsidies and blind resume policy. We show how our results can be used to set a quota level that increases the expected value of the chosen candidate, corrects for inaccurate beliefs and induces truthful type revelation by candidates.
Optimal Menu when Agents Make Mistakes
Research in Economics, 2023
This paper studies how an optimal menu chosen by a social planner depends on whether agents receive imperfect signals about their true tastes (imperfect self-knowledge) or the properties of available alternatives (imperfect information). Under imperfect self-knowledge, it is not optimal to offer fewer alternatives than the number of different tastes present in the population, unless noise is infinite (agents have no clue about their true preferences). As noise increases, the social planner offers menu items that are closer together (more similar). However, under imperfect information, as noise increases, it could be optimal to construct a menu with more distinct alternatives, restrict the number of options, or, for some finite noise, offer a single item.