Dynamic Information Design: A Simple Problem on Optimal Sequential Information Disclosure

Dynamic Games and Applications ◽

10.1007/s13235-021-00392-1 ◽

2021 ◽

Author(s):

Farzaneh Farhadi ◽

Demosthenis Teneketzis

Keyword(s):

Markov Chain ◽

Information Disclosure ◽

Mixed Strategy ◽

Transition Probabilities ◽

Infinite Horizon ◽

Information Design ◽

Simple Problem ◽

Time Varying ◽

Dynamic Information ◽

Time Threshold

AbstractWe study a dynamic information design problem in a finite-horizon setting consisting of two strategic and long-term optimizing agents, namely a principal (he) and a detector (she). The principal observes the evolution of a Markov chain that has two states, one “good” and one “bad” absorbing state, and has to decide how to sequentially disclose information to the detector. The detector’s only information consists of the messages she receives from the principal. The detector’s objective is to detect as accurately as possible the time of the jump from the good to the bad state. The principal’s objective is to delay the detector as much as possible from detecting the jump to the bad state. For this setting, we determine the optimal strategies of the principal and the detector. The detector’s optimal strategy is described by time-varying thresholds on her posterior belief of the good state. We prove that it is optimal for the principal to give no information to the detector before a time threshold, run a mixed strategy to confuse the detector at the threshold time, and reveal the true state afterward. We present an algorithm that determines both the optimal time threshold and the optimal mixed strategy that could be employed by the principal. We show, through numerical experiments, that this optimal sequential mechanism outperforms any other information disclosure strategy presented in the literature. We also show that our results can be extended to the infinite-horizon problem, to the problem where the matrix of transition probabilities of the Markov chain is time-varying, and to the case where the Markov chain has more than two states and one of the states is absorbing.

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Full Implementation in Sequential Information Design

SSRN Electronic Journal ◽

10.2139/ssrn.3950143 ◽

2021 ◽

Author(s):

Hiroto Sato

Keyword(s):

Information Design ◽

Full Implementation ◽

Sequential Information

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Cream Skimming and Information Design in Matching Markets

American Economic Journal Microeconomics ◽

10.1257/mic.20170154 ◽

2019 ◽

Vol 11 (2) ◽

pp. 250-276 ◽

Cited By ~ 5

Author(s):

Gleb Romanyuk ◽

Alex Smolin

Keyword(s):

Calculus Of Variations ◽

Information Disclosure ◽

Market Failure ◽

Information Design ◽

Full Information ◽

Matching Markets ◽

Coarse Information ◽

Cream Skimming ◽

Over Time

Short-lived buyers arrive to a platform over time and randomly match with sellers. The sellers stay at the platform and decide whether to accept incoming requests. The platform designs what buyer information the sellers observe before deciding to form a match. We show full information disclosure leads to a market failure because of excessive rejections by the sellers. If sellers are homogeneous, then coarse information policies are able to restore efficiency. If sellers are heterogeneous, then simple censorship policies are often constrained efficient as shown by a method of calculus of variations. (JEL C78, D82, D83)

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Dynamic Information Design

SSRN Electronic Journal ◽

10.2139/ssrn.3597020 ◽

2020 ◽

Author(s):

Deepanshu Vasal

Keyword(s):

Information Design ◽

Dynamic Information

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Diffusing Coordination Risk

The American Economic Review ◽

10.1257/aer.20171034 ◽

2020 ◽

Vol 110 (1) ◽

pp. 271-297 ◽

Cited By ~ 1

Author(s):

Deepal Basak ◽

Zhen Zhou

Keyword(s):

Information Disclosure ◽

Regime Change ◽

Dynamic Information ◽

Viability Test ◽

Disclosure Policy ◽

Private Signals

In a regime change game, privately informed agents sequentially decide whether to attack without observing others’ previous actions. To dissuade them from attacking, a principal adopts a dynamic information disclosure policy, frequent viability tests. A viability test publicly discloses whether the regime has survived the previous attacks. When such tests are sufficiently frequent, in the unique cutoff equilibrium, agents never attack if the regime passes the latest test, regardless of their private signals. We apply this theory to demonstrate that a borrower can eliminate panic-based runs by sufficiently diffusing the rollover choices across different maturity dates. (JEL C72, D82, G21)

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