Persuading Skeptics and Fans in the Presence of Additional Information

43 Pages Posted: 21 Jul 2022 Last revised: 7 Dec 2022

See all articles by Tamer Boyaci

Tamer Boyaci

ESMT European School of Management and Technology

Soudipta Chakraborty

University of Kansas, School of Business

Huseyin Gurkan

ESMT European School of Management and Technology

Date Written: December 6, 2022

Abstract

We consider the information design problem of a demand-maximizing firm launching a product of unknown quality to a polarized market consisting of customers who have heterogeneous prior beliefs about quality. The firm's information is publicly observable by all customers who can subsequently opt to acquire additional information at a cost from sources outside of the firm's control. Our study is motivated by the common practice of firms selectively soliciting expert opinion leaders to review a new product to inform potential customers about its quality. To analyze this problem, we construct a game-theoretic model of Bayesian persuasion between the firm and its customers. We characterize the firm's optimal information policy and show that it might exaggerate the product’s quality or release incomplete information about quality depending on the market characteristics. We delineate the impact of market heterogeneity and access to additional information on the informativeness of the firm’s policy, its expected demand, and the customers' expected utility. Our analysis surfaces conditions under which the information disseminated by the firm is likely to be less accurate, and when this can lead to reduced customer utility and social welfare. We discuss the implications of these results for the firm and policy makers.

Keywords: Information Design, Bayesian Persuasion, Costly Information Acquisition, Polarization, Product Reviews

Suggested Citation

Boyaci, Tamer and Chakraborty, Soudipta and Gurkan, Huseyin, Persuading Skeptics and Fans in the Presence of Additional Information (December 6, 2022). Available at SSRN: https://ssrn.com/abstract=4139424 or http://dx.doi.org/10.2139/ssrn.4139424

Tamer Boyaci

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin, 10178
Germany

HOME PAGE: http://https://www.esmt.org/tamer-boyaci

Soudipta Chakraborty (Contact Author)

University of Kansas, School of Business ( email )

1654 Naismith Drive
Lawrence, KS 66045-0001
United States

HOME PAGE: http://soudipta.com/

Huseyin Gurkan

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

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