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Paradox of Credibility

Listed author(s):
  • Jung, Hanjoon Michael

In an information transmission situation, a sender's concern for its credibility could endow itself with an invisible power to control the receiver's decisions so that the sender can manipulate information without being 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 sender's 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 sender's credibility concern.

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File URL: https://mpra.ub.uni-muenchen.de/7443/1/MPRA_paper_7443.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7443.

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Date of creation: 04 Mar 2008
Handle: RePEc:pra:mprapa:7443
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  1. Daniel J. Seidmann & Eyal Winter, 1997. "Strategic Information Transmission with Verifiable Messages," Econometrica, Econometric Society, vol. 65(1), pages 163-170, January.
  2. repec:hoo:wpaper:e-89-7 is not listed on IDEAS
  3. Farrell, Joseph & Gibbons, Robert, 1989. "Cheap Talk with Two Audiences," American Economic Review, American Economic Association, vol. 79(5), pages 1214-1223, December.
  4. Roland Benabou & Guy Laroque, 1992. "Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 921-958.
  5. Farrell Joseph, 1993. "Meaning and Credibility in Cheap-Talk Games," Games and Economic Behavior, Elsevier, vol. 5(4), pages 514-531, October.
  6. Ying Chen & Navin Kartik & Joel Sobel, 2008. "Selecting Cheap-Talk Equilibria," Econometrica, Econometric Society, vol. 76(1), pages 117-136, 01.
  7. Austen-Smith, David, 1994. "Strategic Transmission of Costly Information," Econometrica, Econometric Society, vol. 62(4), pages 955-963, July.
  8. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
  9. Jung, Hanjoon Michael, 2007. "Strategic Information Transmission through the Media," MPRA Paper 5556, University Library of Munich, Germany, revised Oct 2007.
  10. Joel Sobel, 1985. "A Theory of Credibility," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 557-573.
  11. 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.
  12. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
  13. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, vol. 134(1), pages 93-116, May.
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