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Costly miscalibration

Author

Listed:
  • Guo, Yingni

    (Department of Economics, Northwestern University)

  • Shmaya, Eran

    (Department of Economics, Stony Brook University)

Abstract

We consider a platform which provides probabilistic forecasts to a customer using some algorithm. We introduce a concept of miscalibration, which measures the discrepancy between the forecast and the truth. We characterize the platform's optimal equilibrium when it incurs some cost for miscalibration, and show how this equilibrium depends on the miscalibration cost: when the miscalibration cost is low, the platform uses more distant forecasts and the customer is less responsive to the platform's forecast; when the miscalibration cost is high, the platform can achieve its commitment payoff in an equilibrium, and the only extensive-form rationalizable strategy of the platform is its strategy in the commitment solution. Our results show that miscalibration cost is a proxy for the degree of the platform's commitment power, and thus provide a microfoundation for the commitment solution.

Suggested Citation

  • Guo, Yingni & Shmaya, Eran, 2021. "Costly miscalibration," Theoretical Economics, Econometric Society, vol. 16(2), May.
    • Handle: RePEc:the:publsh:3991
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    References listed on IDEAS

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    1. Johannes Abeler & Daniele Nosenzo & Collin Raymond, 2019. "Preferences for Truth‐Telling," Econometrica, Econometric Society, vol. 87(4), pages 1115-1153, July.
    2. Michael Luca & Georgios Zervas, 2016. "Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud," Management Science, INFORMS, vol. 62(12), pages 3412-3427, December.
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    Cited by:

    1. Yingkai Li & Boli Xu, 2024. "Information Acquisition Towards Unanimous Consent," Papers 2405.18521, arXiv.org, revised Mar 2025.
    2. Ricardo Alonso & Odilon Câmara, 2024. "Organizing Data Analytics," Management Science, INFORMS, vol. 70(5), pages 3123-3143, May.
    3. Yiding Feng & Wei Tang, 2025. "Persuasive Calibration," Papers 2504.03211, arXiv.org.
    4. Alexander V. Kolesnikov & Fedor Sandomirskiy & Aleh Tsyvinski & Alexander P. Zimin, 2022. "Beckmann's approach to multi-item multi-bidder auctions," Papers 2203.06837, arXiv.org, revised Sep 2022.
    5. Tsakas, Elias & Tsakas, Nikolas, 2021. "Noisy persuasion," Games and Economic Behavior, Elsevier, vol. 130(C), pages 44-61.
    6. Pierfrancesco Guarino, 2025. "Topology-free type structures with conditioning events," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 79(4), pages 1107-1166, June.
    7. Eilat, Ran & Neeman, Zvika, 2023. "Communication with endogenous deception costs," Journal of Economic Theory, Elsevier, vol. 207(C).
    8. Hedlund, Jonas, 2024. "Signaling through Bayesian persuasion," Mathematical Social Sciences, Elsevier, vol. 132(C), pages 15-27.
    9. Andriy Zapechelnyuk, 2023. "On the equivalence of information design by uninformed and informed principals," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(4), pages 1051-1067, November.
    10. Daehong Min, 2021. "Bayesian persuasion under partial commitment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(3), pages 743-764, October.
    11. Pei, Harry, 2023. "Repeated communication with private lying costs," Journal of Economic Theory, Elsevier, vol. 210(C).
    12. Emir Kamenica & Kyungmin Kim & Andriy Zapechelnyuk, 2021. "Bayesian persuasion and information design: perspectives and open issues," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(3), pages 701-704, October.

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    More about this item

    Keywords

    Calibration; miscalibration; cheap talk; commitment; Bayesian persuasion; e-commerce platform;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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