Optimal Attention Management: A Tractable Framework

TL;DR

This paper develops a tractable framework for optimal information provision where a principal influences a rationally inattentive agent, revealing that optimal disclosure involves strategic information distortion depending on attention costs.

Contribution

It introduces a model for optimal attention management with quadratic payoffs and characterizes incentive-compatible information policies, highlighting abrupt changes in disclosure strategies.

Findings

Optimal disclosure involves information distortion at intermediate attention costs.

As attention costs increase, the optimal strategy shifts abruptly from downplaying to exaggerating the state.

The model provides a clear characterization of when full disclosure is not optimal.

Abstract

A well-intentioned principal provides information to a rationally inattentive agent without internalizing the agent's cost of processing information. Whatever information the principal makes available, the agent may choose to ignore some. We study optimal information provision in a tractable model with quadratic payoffs where full disclosure is not optimal. We characterize incentive-compatible information policies, that is, those to which the agent willingly pays full attention. In a leading example with three states, optimal disclosure involves information distortion at intermediate costs of attention. As the cost increases, optimal information abruptly changes from downplaying the state to exaggerating the state.