Uncertainty Paradox: Why You Should (Not) Lie

27 Pages Posted: 18 Nov 2021 Last revised: 27 Jul 2022

See all articles by Seungwon (Eugene) Jeong

Seungwon (Eugene) Jeong

College of Business, Korea Advanced Institute of Science and Technology (KAIST); School of Economics, University of Bristol

Dong-Hyuk Kim

School of Economics, University of Queensland

Date Written: October 18, 2021

Abstract

During the COVID-19 pandemic, unreliable statistics are a growing concern. The government may want to underreport, and cure sellers may want to overreport the number of cases. We introduce an Uncertainty Paradox: seemingly profitable misreporting can be unprofitable when misreporting leads to uncertainty. We relax both the correct belief and common belief assumptions, and show that the seller should prefer no uncertainty in auctions. However, the government---which runs the pandemic procurement that allocates stimulus packages among companies affected by the pandemic---may prefer uncertainty. The incentive to misreport increases with the pandemic impact, and in the limit, uncertainty “disappears.”

Keywords: auction, procurement, uncertainty, pandemic, risk aversion, incorrect be-lief, shill bidding

JEL Classification: D44, D81, H57

Suggested Citation

Jeong, Seungwon (Eugene) and Kim, Dong-Hyuk, Uncertainty Paradox: Why You Should (Not) Lie (October 18, 2021). Available at SSRN: https://ssrn.com/abstract=3944677 or http://dx.doi.org/10.2139/ssrn.3944677

Seungwon (Eugene) Jeong (Contact Author)

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Daejeon, 34141
Korea, Republic of (South Korea)

School of Economics, University of Bristol ( email )

The Priory Road Complex
Bristol, BS8 1TU
United Kingdom

HOME PAGE: http://eugenejeong.com

Dong-Hyuk Kim

School of Economics, University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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