Strategic Behavior, Truthfulness and Welfare of Waiting Option in the Duopoly Forecasting Announcement Market

Young-ro Yoon

No 464, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: In this paper, we discuss the possibility of strategic behavior and truthful reporting in a two players' announcement game when there is a cost for getting information. First we show that the best strategy of each player is to announce the observed signal truthfully if the announcement is made simultaneously. Second we show that if the order of announcement is given exogenously, the player who moves first reports her information truthfully always. But the best strategy of the player who moves later depends on the information cost, the belief in the information quality and payoffs. Also we discuss what is a good scheme to induce player who moves later to observe her signal and announce truthfully. Finally, we discuss about the welfare of using the waiting option in an endogenous ordering. We show that player can be better off in terms of ex-ante compared to the simultaneous announcement case even if she uses the waiting option for delaying her decision. This is a interesting result because the possibility of waiting option is usually understood as a main reason to make player worse-off compared to the simultaneous movement case. The conditions under which each player can be better off or worse off from using the option are explained. Some results of the experiments that support our model are denoted. Some assertions in this paper can be used as an alternative explanation for the phenomenon of the coincidence or discrepancy in the sovereign credit rating or corporate credit rating market by professional analysts and the reputation markets

Keywords: Strategic imitation and deviation; Optimality of waiting option; Positive and Negative Penguin effect (search for similar items in EconPapers)
JEL-codes: C72 D83 L13 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-com and nep-mic
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