Entropy-Regularized Optimal Transport in Information Design

Jorge Justiniano, Andreas Kleiner, Benny Moldovanu, Martin Rumpf and Philipp Strack
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Jorge Justiniano: University of Bonn
Andreas Kleiner: University of Bonn
Benny Moldovanu: University of Bonn
Martin Rumpf: University of Bonn
Philipp Strack: Yale University

No 2419, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: In this paper, we explore a scenario where a sender provides an information policy and a receiver, upon observing a realization of this policy, decides whether to take a particular action, such as making a purchase. The senderÕs objective is to maximize her utility derived from the receiverÕs action, and she achieves this by careful selection of the information policy. Building on the work of Kleiner et al., our focus lies specifically on information policies that are associated with power diagram partitions of the underlying domain. To address this problem, we employ entropy-regularized optimal transport, which enables us to develop an efficient algorithm for finding the optimal solution. We present experimental numerical results that highlight the qualitative properties of the optimal configurations, providing valuable insights into their structure. Furthermore, we extend our numerical investigation to derive optimal information policies for monopolists dealing with multiple products, where the sender discloses information about product qualities.

Pages: 20 pages
Date: 2024-12-16
New Economics Papers: this item is included in nep-mic and nep-upt
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