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Paradox of Credibility

  • Hanjoon Michael Jung

    (LUMS)

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    In an information transmission situation, a senders concern for its credibility could endow itself with an invisible power to control the detected. In this case, the sender can achieve its favored outcome without losing its credibility, which stays true even when the sender and the receiver have contradictory preferences. Therefore, the senders concern for its credibility could result in less truthful signals from the sender and worse payoffs to the receiver. This is the paradox of credibility. This paper models this paradoxical role of the senders credibility concern.

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    File URL: http://www.eaber.org/node/22267
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    Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 22267.

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    Date of creation: Jan 2008
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    Handle: RePEc:eab:microe:22267
    Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
    Web page: http://www.eaber.org

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    1. Farrell Joseph, 1993. "Meaning and Credibility in Cheap-Talk Games," Games and Economic Behavior, Elsevier, vol. 5(4), pages 514-531, October.
    2. Jeong-Yoo Kim, 1996. "Cheap Talk and Reputation in Repeated Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 787-802, Winter.
    3. Farrell, J. & Gibbons, R., 1989. "Cheap Talk With Two Audiences," Working papers 518, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Austen-Smith, David, 1994. "Strategic Transmission of Costly Information," Econometrica, Econometric Society, vol. 62(4), pages 955-63, July.
    5. Jung, Hanjoon Michael, 2007. "Strategic Information Transmission through the Media," MPRA Paper 5556, University Library of Munich, Germany, revised Oct 2007.
    6. Ying Chen & Navin Kartik & Joel Sobel, 2008. "Selecting Cheap-Talk Equilibria," Econometrica, Econometric Society, vol. 76(1), pages 117-136, 01.
    7. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
    8. Benabou, R. & Laroque, G., 1988. "Using Privileged Information To Manipulate Markets: Insiders, Gurus And Credibility," Papers 19, Princeton, Woodrow Wilson School - Discussion Paper.
    9. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
    10. Siddiqi, Hammad, 2007. "Stock Price Manipulation: The Role of Intermediaries," MPRA Paper 6374, University Library of Munich, Germany.
    11. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, vol. 134(1), pages 93-116, May.
    12. Daniel J. Seidmann & Eyal Winter, 1997. "Strategic Information Transmission with Verifiable Messages," Econometrica, Econometric Society, vol. 65(1), pages 163-170, January.
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