Persuading the Principal to Wait

37 Pages Posted: 20 Apr 2016 Last revised: 28 Sep 2019

See all articles by Dmitry Orlov

Dmitry Orlov

University of Rochester - Simon Business School

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business

Pavel Zryumov

University of Rochester - Simon Business School

Date Written: September 25, 2019

Abstract

A principal decides when to exercise a real option. A biased agent influences this decision by strategically disclosing information. Committing to disclose all information with delay is the optimal way to persuade the principal to wait. Without dynamic commitment, this promise is credible only if the agent’s bias is small; otherwise, he pipets information, probabilistically delaying the principal’s action. When the agent is biased towards early exercise, his lack of commitment to remain quiet leads to immediate disclosure, hurting him. Our model applies to pharmaceutical companies conducting clinical trials to influence the FDA or equipment manufacturers testing their products.

Keywords: strategic communication, bayesian persuasion, dynamic games, real options

JEL Classification: C73, D83

Suggested Citation

Orlov, Dmitry and Skrzypacz, Andrzej and Zryumov, Pavel, Persuading the Principal to Wait (September 25, 2019). Stanford University Graduate School of Business Research Paper No. 16-20. Available at SSRN: https://ssrn.com/abstract=2767234 or http://dx.doi.org/10.2139/ssrn.2767234

Dmitry Orlov

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://mentalexperiments.wordpress.com

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-736-0987 (Phone)
650-725-9932 (Fax)

Pavel Zryumov (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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