Persuasion Under Costly Learning

Abstract

Abstract A Sender (seller) tries to persuade a rationally inattentive Receiver (buyer) to take a particular action (e.g., buying). Learning is costly for the Receiver who can choose to process strictly less information than what the sender provides. In a binary-action binary-state model, we show that optimal disclosure involves information distortion, but to a lesser extent than the case without learning costs; meanwhile, the Receiver processes less information than what he would under full disclosure. We also find that the Receiver can leverage his potential inattention to attain a higher equilibrium payoff than the perfectly attentive case. While the Sender is always worse off when facing a less attentive Receiver, the amount of information processed in equilibrium varies with learning costs in a non-monotone fashion.