The Simple Economics of Optimal Persuasion

Piotr Dworczak and Giorgio Martini

Journal of Political Economy, 2019, vol. 127, issue 5, 1993 - 2048

Abstract: We propose a price-theoretic approach to Bayesian persuasion by establishing an analogy between the sender’s problem and finding Walrasian equilibria of a persuasion economy. The sender, who acts as a consumer, purchases posterior beliefs at their prices using the prior distribution as her endowment. A single firm has the technology to garble the state. Welfare theorems provide a verification tool for optimality of a persuasion scheme and characterize the structure of prices that support the optimal solution. This approach yields a tractable solution method for persuasion problems in which the sender’s utility depends only on the expected state.

Date: 2019
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