Evidence and Skepticism in Verifiable Disclosure Games

57 Pages Posted: 5 Jun 2017 Last revised: 3 Mar 2020

Date Written: February 5, 2020

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. As an input to this result, I fully characterize receiver optimal equilibrium outcomes in general verifiable disclosure games. 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 cannot benefit from early inspections.

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

JEL Classification: D82, D83

Suggested Citation

Rappoport, Daniel, Evidence and Skepticism in Verifiable Disclosure Games (February 5, 2020). Available at SSRN: https://ssrn.com/abstract=2978288 or http://dx.doi.org/10.2139/ssrn.2978288

Daniel Rappoport (Contact Author)

Chicago Booth ( email )

5807 S Woodlawn Ave
Chicago, IL 60637

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