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Helping Consumers Know Themselves

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  • Emir Kamenica
  • Sendhil Mullainathan
  • Richard Thaler

Abstract

Firms sometimes know more about a consumer's expected usage than the consumer herself. We explore the consequences of this reversal in the information asymmetry. We analyze the consequences of making consumers more informed about themselves. While making consumers more informed decreases their expenditure conditional on a given set of prices, equilibrium prices may increase, offsetting the direct benefit of information. We discuss theoretical and practical issues surrounding so-called RECAP regulation that would require firms to provide each consumer with information about her own usage of the firm's product.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.417
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 3 (May)
Pages: 417-22

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:417-22

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  1. Meglena Jeleva & Bertrand Villeneuve, 2004. "Insurance contracts with imprecise probabilities and adverse selection," Economic Theory, Springer, vol. 23(4), pages 777-794, May.
  2. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  3. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
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