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We study an adverse selection environment in which a buyer’s
inferential ability is heterogeneous: A rational type correctly infers
the value of the good from a seller’s offer, whereas a naive type is
inattentive to the correlation between the seller’s private information
and the offer. We characterize the optimal menu mechanism
that maximizes the seller’s profits or trade surplus. Notably, no
matter how severe the adverse selection is, all types of buyers trade.
We then provide conditions under which the menu mechanism is
optimal among all general mechanisms. A consumer-protection
policy that limits the naive buyer’s loss is also investigated.
