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Effects of Asymmetric Payoffs and Information Cost in Sequential Information Revelation Games

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  • Young-Ro Yoon

    (Indiana University Bloomington)

Abstract

This paper explores the effects of costly information and asymmetry in reward and penalty on an agent's strategic behavior in acquiring and revealing information. Whether information is costly to acquire or not, in order to induce truthfulness in an agent's action, the penalty should not be stressed more than the reward to avoid herding or imitation. When the reward is greater than the penalty, if information is not costly, for the relatively low quality of information, the agent exhibits anti-herding. However, an equilibrium -- in which she acts truthfully for all parameters of information quality -- can be induced by managing the reward and penalty. If information is costly, within certain parameter sets of information quality, the agent exhibits deviation and imitation. Also, for the moderate quality of information, the agent acquires her information although it is costly and reveals it truthfully. The derived results can provide the reasoning behind agents' behavior trends in information revelation according to reputation and the difficulty of a given task.

Suggested Citation

  • Young-Ro Yoon, 2007. "Effects of Asymmetric Payoffs and Information Cost in Sequential Information Revelation Games," CAEPR Working Papers 2007-010, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2007010
    as

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    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2007-010.pdf
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    References listed on IDEAS

    as
    1. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 389-432.
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    More about this item

    Keywords

    Asymmetry in reward and penalty; Information Cost; Truthfulness in information revelation; Herding; Anti-Herding; Imitation; Deviation;
    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

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