Rational exaggeration and counter-exaggeration in information aggregation games

Gordon Rausser, Leo K Simon, Jinhua Zhao

Research output: Contribution to journalArticleResearchpeer-review

6 Citations (Scopus)

Abstract

We study an information aggregation game in which each of a finite collection of senders receives a private signal and submits a report to the center, who then makes a decision based on the average of these reports. The integration of three features distinguishes our framework from the related literature: players reports are aggregated by a mechanistic averaging rule, their strategy sets are intervals rather than binary choices, and they are ex ante heterogeneous. In this setting, players engage in a tug-of-war , as they exaggerate and counter-exaggerate in order to manipulate the center s decision. While incentives to exaggerate have been studied extensively, the phenomenon of counter-exaggeration is less well understood. Our main results are as follows. First, the cycle of counter-exaggeration can be broken only by the imposition of exogenous bounds on the space of admissible sender reports. Second, in the unique pure-strategy equilibrium, all but at most one player is constrained with positive probability by one of the report bounds. Our third and fourth results hold for a class of anchored games. We show that if the report space is strictly contained in the signal space, then welfare is increasing in the size of the report space, but if the containment relation is reversed, welfare is independent of the size of the space. Finally, the equilibrium performance of our heterogeneous players can be unambiguously ranked: a player s equilibrium payoff is inversely related to the probability that her exaggeration will be thwarted by the report bounds.
Original languageEnglish
Pages (from-to)109 - 146
Number of pages38
JournalEconomic Theory
Volume59
Issue number1
DOIs
Publication statusPublished - 2015

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