Adverse selection and bounded rationality: an impossibility theorem

Takeshi Murooka and Takuro Yamashita
Additional contact information
Takeshi Murooka: Osaka University [Osaka]

Post-Print from HAL

Abstract: We consider an adverse selection environment between an informed seller and an uninformed buyer, where no trade occurs when all buyers are the standard Bayesian-rational type. The buyer may be a "behavioral" type in that he may take actions different from the rational type. We show that, for any incentive-feasible mechanism with any non-trivial trade, the buyer's ex-ante expected payoff is strictly negative. Our result implies that whenever trade occurs, some behavioral types must incur losses—highlighting a new trade-off between social surplus and buyer protection.

Keywords: Adverse selection; Bounded rationality; Mechanism design; No-trade theorem; Consumer protection (search for similar items in EconPapers)
Date: 2022-09-27
References: Add references at CitEc
Citations:

Published in The Japanese Economic Review, 2022, ⟨10.1007/s42973-022-00119-w⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Adverse selection and bounded rationality: an impossibility theorem (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04047796

DOI: 10.1007/s42973-022-00119-w

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().