Hype Cycles: Dynamic Information Design with Two Audiences

80 Pages Posted: 16 Sep 2021 Last revised: 18 Feb 2022

See all articles by Xuelin Li

Xuelin Li

Columbia Business School

Martin Szydlowski

University of Minnesota - Twin Cities - Carlson School of Management

Fangyuan Yu

University of Minnesota

Date Written: September 14, 2021

Abstract

We study dynamic Bayesian persuasion in an entry game. A sender publicly reveals information to an adopter and a competitor. When the sender's loss from competition is small, the optimal policy features hype cycles: the sender first exaggerates the value of a technology to attract the adopter, and then reveals negative information to deter the competitor. Otherwise, the optimal policy features caution: the sender first underplays the value of the technology and reveals positive information later. Hype cycles are more severe in stagnant industries and with higher threat of competition, and arise in industries where the adopter's and the competitor's entry decisions are complementary.

Keywords: Dynamic information design, Bayesian persuasion, multiple receivers, entry games, real options, complementarities

JEL Classification: C73, D82, D83, L15, M37

Suggested Citation

Li, Xuelin and Szydlowski, Martin and Yu, Fangyuan, Hype Cycles: Dynamic Information Design with Two Audiences (September 14, 2021). Available at SSRN: https://ssrn.com/abstract=3923908 or http://dx.doi.org/10.2139/ssrn.3923908

Xuelin Li

Columbia Business School ( email )

665 W. 130th Street
1175 Kravis Hall
New York, NY 10027
United States

Martin Szydlowski (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Fangyuan Yu

University of Minnesota ( email )

Minneapolis, MN
United States
6122275167 (Phone)
55455 (Fax)

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