 Adverse selection and reputation in a world of cheap talkCraig Depken and Ying Zhang The Quarterly Review of Economics and Finance, 2010, vol. 50, issue 4, 548-558 Abstract: Internet message boards are inherently a world of cheap talk due to the anonymity of message authors. This paper investigates whether a pecuniary reputation system influences the adverse selection problem endemic to message boards. First, we find evidence that authors with high reputation scores are less likely to voluntarily offer a buy-hold-sell sentiment in a particular message. Second, we find that authors with no reputation at stake tend to be more bearish with their sentiment but, after controlling for selection, authors with more reputation at stake tend to be bullish in their sentiment. Third, we find that high-reputation authors tend to offer more accurate sentiments on the day their message was posted, which suggests day-trading behavior by authors, but that higher-reputation authors are no more accurate than others after the day of posting. Our results suggest that reputation, coupled with a small pecuniary reward system, can materially influence the adverse selection problem in a world of cheap talk. Keywords: Internet; message; board; Sentiment; Pecuniary; reward (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:50:y:2010:i:4:p:548-558 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
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