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Information Acquisition and Reputation Dynamics

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  • Qingmin Liu

    ()
    (Graduate School of Business, Stanford Univeristy)

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    Abstract

    We study reputation games where a long-lived player with a possible commitment faces a sequence of short-lived players who must pay to observe the long-lived player's past behavior. In this costly information model we show that equilibrium behavior is cyclical. The long-lived player builds her reputation up only to exploit it; then builds it up again, and so on. We call this behavior reputation renewal and show that for a wide class of reputation games as well as for a host of possible alternatives to the information cost structure, all equilibria display reputation renewal. We provide a method to construct the equilibria, and explicitly construct an essentially unique equilibrium for the case of linear cost functions. We also find that in the reputation renewal equilibria, the short-lived players always randomize how much information they purchase, but play pure strategies once the information is obtained.

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    Bibliographic Info

    Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 06-030.

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    Date of creation: Jan 2006
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    Handle: RePEc:sip:dpaper:06-030

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    Related research

    Keywords: behavioral economics; reputation;

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    References

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    1. Rosenthal, R W, 1979. "Sequences of Games with Varying Opponents," Econometrica, Econometric Society, vol. 47(6), pages 1353-66, November.
    2. Mailath, George J & Samuelson, Larry, 2001. "Who Wants a Good Reputation?," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 415-41, April.
    3. Cripps,M.W. & Mailath,G.J. & Samuelson,L., 2002. "Imperfect monitoring and impermanent reputations," Working papers 17, Wisconsin Madison - Social Systems.
    4. V. V. Chari & Patrick J Kehoe, 1998. "Sustainable Plans," Levine's Working Paper Archive 600, David K. Levine.
    5. Drew Fudenberg & David Levine, 1987. "Reputation and Equilibrium Selection in Games With a Patient Player," Working papers 461, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
    7. Cole, Harold L. & Kocherlakota, Narayana R., 2005. "Finite memory and imperfect monitoring," Games and Economic Behavior, Elsevier, vol. 53(1), pages 59-72, October.
    8. Mehmet Ekmekci, 2010. "Sustainable Reputations with Rating Systems," Discussion Papers 1505, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
    10. V. V. Chari & Patrick E. Kehoe, 1990. "Sustainable Plans and Mutual Default," IMF Working Papers 90/22, International Monetary Fund.
    11. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-62, August.
    12. Barro, Robert J., 1986. "Reputation in a model of monetary policy with incomplete information," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 3-20, January.
    13. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
    14. Christopher Phelan, 2001. "Public trust and government betrayal," Staff Report 283, Federal Reserve Bank of Minneapolis.
    15. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
    16. Stokey, Nancy L, 1989. "Reputation and Time Consistency," American Economic Review, American Economic Association, vol. 79(2), pages 134-39, May.
    17. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring.
    18. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, October.
    19. Taylor, John B., 1983. "`Rules, discretion and reputation in a model of monetary policy' by Robert J. Barro and David B. Gordon," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 123-125.
    20. Harold L. Cole & James Dow & William B. English, 1994. "Default, settlement, and signalling: lending resumption in a reputational model of sovereign debt," Staff Report 180, Federal Reserve Bank of Minneapolis.
    21. Ichiro Obara, . "Endogenous Monitoring," UCLA Economics Online Papers 398, UCLA Department of Economics.
    22. Mailath, George J & Samuelson, Larry, 2001. "Who Wants a Good Reputation? Erratum," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 714, July.
    23. Margaret J. Miller (ed.), 2003. "Credit Reporting Systems and the International Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262134225, December.
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