Research

Abstract: We consider a sender who observes the state and chooses between disclosing the state or spending time and cost to utilize an imperfect reporting device. The sender’s payoff is maximized if the receiver guesses the state is good, while the receiver’s payoff is maximized by correctly identifying the state. The sender can utilize the device in the bad state to persuade and extract surplus from the receiver. Extraction is contingent on the sender’s ability to hide the origin of messages, sender disclosures versus device reports, from the receiver. Due to the time requirement and state-dependent utilization of the test, a sophisticated receiver can infer the state if the sender does not strategically choose their disclosure time. We model interaction, solve for all Bayesian Nash equilibria, and conduct an experiment varying the visibility of disclosure time. Consistent with theoretical benchmarks, treatment subjects’ difference in disclosure times between states are 28.04% smaller than control subjects with similar test utilization.