We consider a private value single-prize asymmetric information Tullock contest between an incumbent and an entrant. The incumbent’s prize value is common knowledge, whereas the entrant is uncertain about her value and strategically acquires information to learn about it before the contest. Inspired by Roesler and Szentes (2017), we study how the entrant’s endogenous learning influences strategic contest effort choices. The entrant faces a tradeoff between more uncertainty about her value and less intense competition. If the entrant’s value is ex ante weakly lower than the incumbent’s value, full learning is the optimal strategy. However, if the entrant’s value is ex ante the higher one, no learning can be more advantageous than full learning.
"The strong entrant may decide not to acquire full information, even if freely available, to prevent provoking a heightened competitive response from the incumbent."
A decision maker chooses between the status quo and an alternative action under uncertainty. The uncertainty is two-dimensional and its realization in each dimension is independent. For each dimension, there is an expert who provides information only on that dimension. Both experts strictly prefer the alternative action and simultaneously provide information to the decision maker. We compare the experts’ highest equilibrium payoff in this game to the payoff in an auxiliary game where they collude and can choose any information structure. We show that the experts strictly gain from collusion if and only if one of the experts can unilaterally persuade the decision maker to take the alternative action with positive probability.
"A necessary condition for independent senders to achieve the same expected utility as under collusion is that the optimistic posterior induced under collusion must lie on the edge of the tetrahedron."
We experimentally study how leadership selection mechanisms affect public goods provision. Introducing leadership does not raise contribution. Voluntary leadership performs the worst, primarily because the absence of leadership signals uncooperative play, and candidates free-ride on other leaders. Voluntary leadership from a randomly selected candidate is a promising endogenous leadership selection mechanism, primarily because assuming leadership by revealed preference signals cooperative play, the absence of leadership leaves the possibility of unlucky cooperative candidates, and sole leadership removes the leader’s free-riding incentives.
This paper incorporates a Bayesian persuasion model into a vertically differentiated oligopoly to study the effects of the entrant's quality testing and disclosure strategy and the regulator's mandatory disclosure policy on market competition as well as innovation. We establish the following results. (1) When the entrant is free to choose its disclosure policy, full revelation arises only when the target quality is sufficiently high. Otherwise the entrant partially or fully conceals quality information to stay differentiated from its opponent's product. (2) The mandatory disclosure policy reduces entry by restricting the entrant's expected profit. (2) The mandatory disclosure policy reduces the profitability of the entrant, yielding differential innovation and welfare effect depending on the tension between the target quality and R&D risk. When the tension is sufficiently strong, mandatory disclosure discourages innovation in the sense that the entrant chooses a more "conservative" R&D strategy. The improved transparency increases the consumer surplus while reduces the firms' profits. When the tension is moderate, mandatory disclosure forces the entrant to switch to a more "radical" and risky R&D strategy. The resulting excessive risk harms the consumer surplus and the entrant's profit, while benefits the incumbent by raising its chance of becoming a monopoly.
This study examines information transmission using an indirect approach wherein designers shape a decision maker’s (DM) knowledge by strategically making information difficult to process. We compare the indirect approach with the direct approach à la Bayesian persuasion. In single-designer settings, posterior-separable costs replicate the designer’s first-best persuasion outcome. However, in multi-designer settings where the decision maker can use only one source, information cost design fails to replicate the persuasion outcomes and induces full information. In contrast, when the DM can acquire information sequentially from multiple designers, information cost design replicates the affine-independent persuasion outcomes. Our findings demonstrate how competing sources and forms of information processing can influence DM’s action when information gatekeepers loosen control over information acquisition.
We consider a Bayesian persuasion setting where a sender maximizes the probability of a receiver with private taste choosing a risky action. The sender designs a menu of information structures and can use information obfuscation, strategically making information structures costly for the receiver to process. We characterize the optimal menu. When information obfuscation strictly benefits the sender, a low-stakes receiver chooses a costless and less informative information structure, while a high-stakes receiver chooses a costly and more informative information structure. When information obfuscation is not helpful to the sender, the sender provides a single information structure. When the sender also charges a posted price when the receiver takes the risky action, information obfuscation is not helpful, and the sender provides full information and extracts all surplus.
We conducted experiments on Lipnowski and Ravid (2020)'s model of cheap talk with transparent motives using a broker-investor game with belief elicitation. We find that senders largely adopted the equilibrium strategy of a median cutoff policy, and variations in brokerage proportions do not affect the information conveyed. However, we find evidence of inconsistent belief updating; some receivers did not update. Most receivers failed to trade off more accurate beliefs against higher brokerage fees. Subjects showed limited learning, primarily identifying whether others were lying or trusting, rather than learning the partner's strategy. Some pairs exhibited "grim-trigger-strategy" behaviors to sustain cooperation through sender truth-telling and receiver trusting. Other pairs showed distrust from the onset through sender babbling or lying and receiver not-acting or counteracting.
Presented at: 2024 China BEEF International Workshop on Behavioral and Experimental Economics. (Excellent Paper) The 35th Stony Brook Conference on Game Theory.