Persuasion with Reference Cues and Elaboration Costs

We develop a model of persuasion where, consistent with the psychological literature on dual process theory, the persuadee has to sustain a cognitive effort – the elaboration cost – in order to fully and precisely elaborate information. The persuader makes an offer to the persuadee and, aware that she is a dual process reasoner, also sends her a costly signal – the reference cue – which refers the offer to a category of offers whose average quality is known by the persuadee. Initially, the actual quality of the offer by the persuader is hidden to the persuadee, while the signal is visible. Then, the persuadee can either rely on cheap low elaboration and form expectations on the basis of the signal – thinking coarsely, i.e., by category – or engage in costly high elaboration to attain knowledge of the actual quality of the offer. This signaling setup allows us to keep the assumption that agents are both rational and Bayesian and, at the same time, to match many of the findings emphasized by well established psychological models of persuasion – such as the Elaboration Likelihood Model and the HeuristicSystematic Model. In addition, the model provides novel theoretical results such as the possibility of separating equilibria that do not rely on the single-crossing property and, in particular, the emergence of a new phenomenon that we name reverse-signaling, where high types send low signals and low types send high signals.