The Supply of Information by a Concerned Expert

Howmuch information should a policy maker pass on to a currently ill-informed citizen? In this paper, we address this classic question of Crawford and Sobel [1983] in a setting in which beliefs impact utility, as in Kreps and Porteus [1978]. We show that this simple amendment has far-reaching implications. In particular, our question cannot be answered using a utility function with standard revealed preference foundations: revealed preference cannot tell us whether in a particular state s a decision maker prefers to believe incorrectly that the state is t, or to know the truth. To solve the model, we go beyond the classical model in two respects, relying on the psychological expected utility model of Caplin and Leahy [2001] to capture preferences, and the psychological game model of Geanakoplos, Pearce, and Stacchetti [1989] to capture strategic interactions.