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Information Acquisition and Reputation Dynamics

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  • Qingmin Liu

    () (Graduate School of Business, Stanford Univeristy)

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.

Suggested Citation

  • Qingmin Liu, 2006. "Information Acquisition and Reputation Dynamics," Discussion Papers 06-030, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:06-030
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    References listed on IDEAS

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    More about this item

    Keywords

    behavioral economics; reputation;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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