Evidence and Skepticism in Verifiable Disclosure Games

Abstract

A key feature of communication with evidence is skepticism: to the extent possible, a receiver will attribute any incomplete disclosure to the sender concealing unfavorable evidence. The degree of skepticism depends on how much evidence the sender is expected to possess. I characterize when a change in the prior distribution of evidence induces more skepticism, i.e. induces any receiver to take an equilibrium action that is less favorable to the sender following every message. I formalize an increase in the sender’s (ex-ante) amount of evidence and show that this is equivalent to inducing more skepticism. My analysis provides a method to solve general verifiable disclosure games, including an expression for equilibrium actions. I apply these results to a dynamic disclosure problem in which the sender obtains and discloses evidence over time. I identify the necessary and sufficient condition on the evidence structure such that the receiver can benefit from early inspections.

Keywords: Verifiable Disclosure, Hard Information, Monotone Likelihood Ratio Property, Comparative Statics, Skepticism

JEL Classification: D82, D83