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

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Date
2007-06-19
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Center for Applied Economics and Policy Research
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.
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CAEPR, Center for Applied Economics and Policy Research, Asymmetry in reward and penalty, Information Cost, Truthfulness in information, Herding, Anti-Herding, Imitation, Deviation
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Working Paper