Munich Personal RePEc Archive

Paradox of Credibility

Jung, Hanjoon Michael (2008): Paradox of Credibility.

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Abstract

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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