Developing a Reputation for Reticence
Michael D. Grubb
Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)
February 24, 2011
Journal of Economics & Management Strategy, Vol. 20, Issue 1, pp. 225-268, 2011
A sender who has disclosable information with probability less than one may partially conceal bad news by choosing to withhold information and pooling with uninformed types. The success of this strategy depends on receivers' beliefs about the probability that the sender has disclosable news. In a dynamic context, informed senders try to cultivate a reputation for reticence either by concealing good news along with the bad, or by concealing some good news and disclosing some bad news. A reputation for reticence is valuable because it makes receivers less skeptical of past or future nondisclosures. The model provides insight into the choice by firms such as Google not to disclose quarterly earnings guidance to analysts, as well as Tony Blair's reticence over his son's vaccine record during the measlesmumpsrubella scare in the United Kingdom.
Number of Pages in PDF File: 44Accepted Paper Series
Date posted: March 16, 2011
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