Publications in Peer-Reviewed Journals
"The Dirty Face Problem with Unawareness", The B.E. Journals of Theoretical Economics, Vol. 8: Iss. 1 (Topics), Article 28. Available at: http://www.bepress.com/bejte/vol8/iss1/art28
ABSTRACT
By revisiting the classic dirty face problem we highlight the notion of ``unawareness'' (a simpler state space) and compare it with ``impreciseness'' (a coarser information partition). The outcomes are derived with various information structures. That allows us to 1) demonstrate a model of differing interpretations of public information using asymmetric awareness; 2) compare and contrast the impact of unawareness and impreciseness on learning; 3) analyze the value of awareness and the value of preciseness; and 4) demonstrate the effect of unawareness and impreciseness on information aggregation through indirect aggregation.
Working Papers
"Consumer Unawareness and Competitive Strategies" with Chun Qiu
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ABSTRACT
Consumers frequently make purchases under incomplete information. In many circumstances, they are unaware of the incompleteness of the information, such as which product has the attributes that match their personal characteristics. This paper studies how such consumer unawareness affects firms’ decisions in product offerings, pricing, and promotion in an asymmetric duopoly competition between a small startup and a big established firm. We find that in duopoly market, consumer unawareness benefits the established firm but hurts the small firm in terms of profitability. Nevertheless, it requires a moderate degree of unawareness for the small firm to enter. A too high or too low degree of consumer unawareness blocks its entry. When both firms can promote consumer awareness before the entry, under some conditions the small firm strategically under-promotes awareness to generate a smaller demand for its products. Under other conditions, the established firm may strategically over-promote consumer awareness in order to deter the small firm’s entry. This also implies that more effective promotion technology may enhance either effect and may or may not make consumers better informed. We empirically validate some theoretical predictions using shampoo data.
"Fair Disclosure and Investor Asymmetric Awareness in Stock Markets"
Version 0308, Version 1007
(Outstanding Doctoral Student Paper award, the 2007 Mid-Atlantic Regional Meeting of the American Accounting Association)
ABSTRACT
The notion of awareness is introduced to study Regulation Fair Disclosure, a rule implemented by the U.S. Security and Exchange Commission in 2000. The regulator aims to reduce information asymmetry among investors, and expects public forums to subsume the forbidden information channel of selective forums. We show that even with cooperative managers and effective technology, this is only possible under the assumption of symmetric awareness. If a professional investor is aware of more uncertainties than others are, lacking the incentive to share the insights, he would not raise critical questions and acquire relevant information at public forums. This leads to inefficient information production. We also analyze the market prices and investors' welfare under different disclosure forms and awareness assumptions. At last, we discuss the implications of asymmetric awareness on the overall benefit and cost, the empirical findings, and the policies of the regulation.
"Social Security Literacy and Retirement Well-Being?" (in progress), with Hugo Benitez-silva and Berna Demiralp
ABSTRACT
We build upon the growing literature on financial literacy, which studies the prevalence of lack of knowledge about various financial issues, and propose to analyze how much people know about the Social Security rules using both a small pilot survey we have already conducted, and a follow-up and extended survey, hopefully funded by this proposal. We then propose to assess the consequences of the apparent prevalence of lack of information by individuals about the rules governing the Social Security system using a realistic and empirically-based life-cycle model of retirement behavior under uncertainty. We will investigate the individual’s retirement and savings decisions under incomplete information and unawareness, in which a portion of the population does not know some or all of the rules of the system. We will compare the outcomes in these cases to the outcome under full information, computing the average welfare gain resulting from the acquisition of information regarding the Social Security system. Our analysis can illuminate the need for policies that foster knowledge of the system, which can improve welfare among Americans of all ages.
"Games with Incomplete Information when Players Are Partially Aware of Others' Signals"
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ABSTRACT
In games with incomplete information, if a player is unaware of some signals available to the other, he associates the other with an information structure that is less informative than the actual one. Consequently, he underestimates the sophistication of the other's strategy. Instead, his perception is that some part of the other's play is purely random, although it is contingent on signals that he is unaware of. When every player plays best responses given their perception of opponents' strategies, the limiting outcome of the game deviates from standard Bayesian Nash equilibrium. We propose a solution concept termed equilibrium with partial signal-awareness (EPSA), show its existence, and discuss a learning interpretation. Then, we explore the relation between EPSA and two other solution concepts that allow players to use coarse reasoning. First, we show that under certain condition, EPSA is a special analogy-based expectation equilibrium (Jehiel and Koessler, 2008). Second, we show that cursed equilibrium (Eyster and Rabin, 2005) is a special EPSA. In addition, we prove that a decrease of cursedness of a player in cursed equilibrium corresponds to an increase of signal-awareness of the same player in EPSA. Finally, we present a simple auction model where equilibrium signal-awareness depends on characteristics of the underlying signal.
ABSTRACT
Given two players holding a common prior and distinct information partitions, the No Bet theorem (Sebenius and Geanakoplos, 1982) says that when at a state it is common knowledge that one's conditional expectation is no less than a certain number but the other one's is not greater than it, their conditional expectations must be the same. The extended theorem generalizes the result by taking away the separating number which is sometimes not available in practice. We also generalize the extended theorem to the case where priors are heterogeneous. As an application, we show that if the ranking of each player's expectation, or just the identity of the highest/lowest one is common knowledge, players must agree in the logic of the extended theorem, but may not agree under the original No Bet theorem.
A Short Survey on the Applications of Unawareness
