A Note on Adverse Selection and Bounded Rationality

Résumé

We consider an adverse selection environment between an informed seller and an uninformed buyer, where no trade occurs when all buyers are rational. The buyer may be a “behavioral” type in the sense that he may take actions different from a 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.

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Référence

Takuro Yamashita et Takeshi Murooka, « A Note on Adverse Selection and Bounded Rationality », TSE Working Paper, n° 21-1244, septembre 2021.