Download this Paper Open PDF in Browser

Evidence and Skepticism in Verifiable Disclosure Games

57 Pages Posted: 5 Jun 2017 Last revised: 26 Nov 2017

Daniel Rappoport

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Date Written: November 12, 2017

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

Suggested Citation

Rappoport, Daniel, Evidence and Skepticism in Verifiable Disclosure Games (November 12, 2017). Available at SSRN: https://ssrn.com/abstract=2978288

Daniel Rappoport (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 w 118th st.
New York, NY 10025
United States

Paper statistics

Downloads
265
Rank
98,457
Abstract Views
783