Suchergebnisse

We analyze information reporting by a privately informed expert concerned about being perceived to have accurate information. When the expert's reputation is updated on the basis of the report as well as the realized state, the expert typically does not wish to truthfully reveal the signal observed. The incentives to deviate from truth telling are characterized and shown to depend on the information structure. In equilibrium, experts can credibly communicate only part of their information. Our results also hold when experts have private information about their own accuracy and care about their reputation relative to others.

We consider the credibility, persuasiveness, and informativeness of multidimensional cheap talk by an expert to a decision maker. We find that an expert with state-independent preferences can always make credible comparative statements that trade off the expert's incentive to exaggerate on each dimension. Such communication benefits the expert—cheap talk is "persuasive"—if her preferences are quasiconvex. Communication benefits a decision maker by allowing for a more informed decision, but strategic interactions between multiple decision makers can reverse this gain. We apply these results to topics including product recommendations, voting, auction disclosure, and advertising. (JEL D44, D72, D82, D83, M37)

AbstractThe conventional wisdom is that an incumbent can deter the rival firm's entry by costly limit pricing but cannot deter entry by a costless signal, so‐called cheap talk. In this short paper, we show that an incumbent can deter entry of a potential competitor by cheap talk if there is another potential entrant producing complementary goods. In equilibrium, which is partially revealing, the incumbent can use publicly observable cheap talk that can deter entry of the rival firm with some positive probability.