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Test Design Under Falsification

Author

Listed:
  • Eduardo Perez-Richet

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research)

  • Vasiliki Skreta

    (University of Texas at Austin [Austin], UCL - University College of London [London], CEPR - Center for Economic Policy Research)

Abstract

We study the optimal design of tests with manipulable inputs. Tests take a unidimensional state of the world as input and output, an informative signal to guide a receiver's approve or reject decision. The receiver wishes to only approve states that comply with her baseline standard. An agent with a preference for approval can covertly falsify the state of the world at a cost. We characterize receiver‐optimal tests and show they rely on productive falsification by compliant states. They work by setting a more stringent operational standard, and granting noncompliant states a positive approval probability to deter them from falsifying to the standard. We also study how falsification‐detection technologies improve optimal tests. They allow the designer to build an implicit cost of falsification into the test, in the form of signal devaluations. Exploiting this channel requires enriching the signal space.

Suggested Citation

  • Eduardo Perez-Richet & Vasiliki Skreta, 2022. "Test Design Under Falsification," Sciences Po Economics Publications (main) hal-03873972, HAL.
    • Handle: RePEc:hal:spmain:hal-03873972
    DOI: 10.3982/ECTA16346
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03873972v1
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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